S-1 1 ds1.htm FORM S-1 Form S-1
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As filed with the Securities and Exchange Commission on December 20, 2007

Registration No. 333-            

 


UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933


INTREPID POTASH, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   1400   26-1501877

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

700 17th Street, Suite 1700

Denver, CO 80202

(303) 296-3006

(Address, including zip code and telephone number, including

area code, of registrant’s principal executive offices)

 

Robert P. Jornayvaz III

Chairman of the Board and Chief Executive Officer

Intrepid Potash, Inc.

700 17th Street, Suite 1700

Denver, CO 80202

(303) 296-3006

(Name, address, including zip code and telephone number, including area code, of agent for service)


Copies to:

W. Dean Salter

Mashenka Lundberg

Holme Roberts & Owen LLP

1700 Lincoln Street, Suite 4100

Denver, CO 80203

(303) 861-7000

 

G. Michael O’Leary

Meredith S. Mouer

Andrews Kurth LLP

600 Travis, Suite 4200

Houston, TX 77002

(713) 220-4200


Approximate date of commencement of proposed sale to the public:

As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨


CALCULATION OF REGISTRATION FEE


Title of Each Class of

Securities to Be Registered

 

Proposed Maximum
Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee

Common stock, $0.001 par value per share

  $100,000,000   $3,070

(1)   Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.
(2)   Includes shares of common stock which may be purchased by the underwriters to cover over-allotments, if any.

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 



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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PROSPECTUS (Subject to Completion)

Issued December     , 2007

 

             Shares

 

LOGO

 

COMMON STOCK

 


 

Intrepid Potash, Inc. is offering                  shares of our common stock. We are a corporation recently formed by Intrepid Mining LLC. This is our initial public offering and no public market currently exists for our common stock. We anticipate that the initial public offering price will be between $         and $         per share.

 


 

We intend to apply for the listing of our common stock on a national securities exchange.

 


 

Investing in the common stock involves risks. See “ Risk Factors” beginning on page 13.

 


 

PRICE $             A SHARE

 


 

    

Price to

Public

  

Underwriting

Discounts and
Commissions

  

Proceeds to

Company

Per share

   $            $            $        

Total

   $                    $                    $                

 

We have granted the underwriters the right to purchase up to an additional                 shares of common stock to cover over-allotments. We intend to use the net proceeds we receive from any shares sold pursuant to the underwriters’ over-allotment option to pay a dividend to the current members of Intrepid Mining LLC.

 

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock to purchasers on                     , 2008.

 


 

MORGAN STANLEY

 

                    , 2008


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You may rely on the information contained in this prospectus. Neither we nor any of the underwriters have authorized anyone to provide information different from that contained in this prospectus. When you make a decision about whether to invest in our common stock, you should not rely upon any information other than the information in this prospectus and any free writing prospectus we provide you with. Neither the delivery of this prospectus nor sale of common stock means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these shares of common stock in any circumstances under which the offer or solicitation is unlawful.

 

Until                     , 2008 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

We own, or claim ownership rights to, a variety of trade names, service marks and trademarks for use in our business, including Intrepid Potash, Intrepid Potash (stylized logo) appearing on the cover page of this prospectus, in the U.S. and, where appropriate, in foreign countries. This prospectus also includes product names and other trade names and service marks owned by us and other companies. The trade names and service marks of other companies are the property of those other companies.

 

Market data and industry statistics used throughout this prospectus are based on independent industry publications and other publicly available information. We have not independently verified, and do not guarantee, the accuracy of this information. Accordingly, you should not place undue reliance on this information.

 

Actual production, revenue and expenditures with respect to our reserves will likely vary from estimates, and these variations may be material. As a result, you should not place undue reliance on the muriate of potash and langbeinite reserve data included in this prospectus.

 

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PROSPECTUS SUMMARY

 

The following summary highlights selected information contained in other parts of this prospectus. The summary is qualified in its entirety by the information contained elsewhere in this prospectus. You should read the entire prospectus carefully, especially the matters discussed under “Risk Factors” and the financial statements and related notes included in this prospectus, before deciding to invest in our common stock. We include a glossary of some of the terms used in this prospectus as Appendix A.

 

References in this prospectus to “Intrepid Potash”, “our”, “we” or “us” are to Intrepid Potash, Inc. and its consolidated subsidiaries and include Intrepid Mining LLC unless the context otherwise requires. References to “Intrepid Mining” are to Intrepid Mining LLC. References to Intrepid Moab, Intrepid New Mexico and Intrepid Wendover are to Intrepid Potash–Moab, LLC, Intrepid Potash–New Mexico, LLC and Intrepid Potash–Wendover, LLC, respectively, our principal operating subsidiaries. References to “tons” in this prospectus refer to short tons. One short ton equals 2,000 pounds. References to “the current members of Intrepid Mining” or “the original stockholders” are to Harvey Operating and Production Company, Intrepid Production Corporation, and Potash Acquisition, LLC, who, as of the date of this prospectus, collectively own 100% of the membership interests of Intrepid Mining. Unless otherwise indicated, references to “potash” in this prospectus refer to muriate of potash.

 

INTREPID POTASH, INC.

 

Overview

 

We are the largest producer of muriate of potash (MOP, or potassium chloride) in the U.S. and are dedicated to the production and marketing of potash and langbeinite, another mineral containing potassium. Potassium is one of the three nutrients essential to plant formation and growth. Since 2004, we have supplied, on average, 1.5% of world potash consumption and 8.5% of U.S. consumption annually, and we have supplied a considerably higher proportion of the potash consumed in the southwestern and western U.S., our core markets. We are one of two exporting producers in the world of langbeinite (sulfate of potash magnesia), a low-chloride fertilizer that is better suited than MOP for chloride-sensitive crops. We own five active potash production facilities—three in New Mexico and two in Utah—and we have the nameplate capacity to produce 1,100,000 tons of potash and 250,000 tons of langbeinite annually. We own two development assets in New Mexico—the HB Mine, which is an idled potash mine that we are in the process of reopening as a solution mine, and the North Mine. We expect that the expansion opportunities at our operating facilities and the HB Mine will increase production by an aggregate of over 370,000 tons of potash and langbeinite annually over the next five to seven years. We also produce salt, magnesium chloride and metal recovery salts from our potash mining processes.

 

Our principal assets include:

 

   

Two conventional, underground potash mines in Carlsbad, New Mexico—the West Mine and the East Mine—and the North Facility compaction plant. The West Mine has the nameplate capacity to produce 510,000 tons of potash annually. Potash from our West Mine is processed at our North Facility compaction plant. The East Mine produces two products, with the nameplate capacity to produce 390,000 tons of potash and 250,000 tons of langbeinite annually. The East Mine mill is a dual potash and langbeinite facility that uses a first-of-its-kind milling process.

 

   

Two potash facilities in Utah—the Moab Mine and the Wendover Facility. The Moab Mine uses solution mining methods to extract potash and has the nameplate capacity to produce 100,000 tons of potash annually. The Wendover Facility collects potash from natural brines and has the nameplate capacity to produce 100,000 tons of potash annually. Both of these facilities use low-cost solar evaporation to recover potash.

 

 

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Two development assets in Carlsbad, New Mexico—the HB Mine and the North Mine. The HB Mine is an idled potash mine that we are in the process of reopening as a solution mine. We expect to commence Phase I of the project in 2008, with production beginning in 2009. We believe Phase I has the potential to ultimately add up to 150,000 to 200,000 tons of additional low-cost potash production annually by 2011. The North Mine is another idled underground potash mine that we may choose to reopen in the future and that already has in place mine shafts and much of the transportation and utility infrastructure required for operation.

 

For the nine-month period ended September 30, 2007, we sold 678.7 thousand tons of potash and 131.6 thousand tons of langbeinite, generating net sales of $140.1 million, EBITDA of $36.2 million and net income of $23.1 million. During this period, we sold approximately 95% of our potash and langbeinite volumes in North America, with the remainder being sold outside North America on our behalf by Potash Corporation of Saskatchewan Inc., or PCS. The agricultural market represented approximately 64% of our potash sales in the nine months ended September 30, 2007, with sales to industrial and feed markets accounting for 30% and 6% of our potash sales, respectively.

 

Company History

 

Intrepid Mining was formed in January 2000 for the purpose of acquiring the Moab Mine from PCS. The Moab Mine was a solution mine which had experienced sustained declining production. Our management team stabilized production volumes at nearly twice the pre-acquisition level by applying horizontal drilling technology that is commonly used in the oil and gas industry but had never before been used to mine potash.

 

We observed that potash from Moab shared markets with potash produced in Carlsbad, New Mexico and in Wendover, Utah. Accordingly, we formulated a strategy to acquire assets in those areas in order to consolidate marketing efforts and effect operating synergies. We acquired the assets of Mississippi Potash, Inc. and Eddy Potash, Inc. in Carlsbad, New Mexico from Mississippi Chemical Company in February 2004. In April 2004, we acquired the potash assets of Reilly Chemical, Inc. in Wendover, Utah.

 

Intrepid Potash was formed as a Delaware corporation on November 19, 2007 and, in connection with the completion of this offering, will acquire all of the assets of Intrepid Mining other than cash and will assume $             million of Intrepid Mining’s liability under its existing senior credit facility and all other existing liabilities of Intrepid Mining.

 

Industry Overview

 

Fertilizers serve a fundamental role in global agriculture by providing vital nutrients that help sustain both the yield and the quality of crops. The three essential nutrients required for plant growth are nitrogen, phosphate and potassium (potash), and there are no known substitutes for these nutrients. A proper balance of each of the three nutrients is necessary to maximize their effectiveness. Potash helps regulate plants’ physiological functions and improves plant durability, providing crops with protection from drought, disease, weeds, parasites and cold weather. Unlike nitrogen and phosphate, potash does not require additional chemical conversion to be used as a plant nutrient.

 

Fertecon Limited, a fertilizer industry consultant, expects global potash fertilizer consumption to grow 3.4% annually from 2007 to 2011. This growth is driven primarily by strong global demand for agricultural commodities, which in turn is driven by the demand for food and alternative energy sources. As populations grow, more food is required from decreasing arable land per capita, which requires higher crop yields and, therefore, more plant nutrients. As incomes grow in the developing world, people consume more animal protein, which requires large amounts of grain for feed. In addition, high oil prices and associated energy concerns have recently placed a renewed emphasis on ethanol and bio-diesel production, which currently rely on agricultural products as feedstocks.

 

 

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Potash is mined either from conventional underground mines or, less frequently, from surface or sub-surface brines. According to the International Fertilizer Industry Association, or IFA, six countries accounted for approximately 87% of the world’s aggregate potash production in the first half of 2007. During this time period, the top seven potash producers controlled approximately 84% of world production. Five of the top ten producers are further concentrated into two marketing groups, which together controlled approximately 58% of global potash production in the first half of 2007.

 

Virtually all of the world’s potash is currently extracted from twenty commercial deposits, and the most recently constructed operating mine in the world was opened in 1987. Barriers to adding new potash production are significant because economically recoverable potash deposits are scarce, deep and geographically concentrated. A further challenge is that the majority of unexploited mineralized deposits of potash existing outside the Canadian province of Saskatchewan are located in remote and/or politically unstable regions such as the Congo, Thailand and Argentina.

 

In recent years, consistent growth in global demand coupled with limited increases in global supply have led to significant increases in producer operating rates. During 2007, we believe the global potash industry has operated at or near the highest achievable production rates. As a result of increasing demand and tight supply, potash prices have increased rapidly, leading to an 89% increase in delivered granular MOP prices in the midwestern U.S., from $205.00 per ton as of December 1, 2006 to $387.50 per ton as of December 1, 2007.

 

     Nine Months Ended
September 30,
   Year Ended December 31,
     2007    2006    2006    2005    2004

Average delivered list prices for granular MOP (per ton)(1)

              

Saskatchewan, Canada

   $ 202.37    $ 185.50    $ 185.50    $ 172.85    $ 123.43

Midwestern, U.S.

     231.22      205.94      204.81      209.52      158.82

Carlsbad, New Mexico

     203.28      195.00      195.00      182.26      133.29

Intrepid Potash average net selling prices for potash
(per ton)(2)

   $ 185.15    $ 180.03    $ 177.51    $ 161.28    $ 119.43

  (1)   Average delivery list prices include delivery to the list price location. Source: Green Markets Fertilizer Market Intelligence Weekly.
  (2)   Intrepid Potash net selling prices are net of freight.

 

Our Competitive Strengths

 

   

U.S. potash-only producer. We are the largest producer of potash in the U.S., the second largest potash-consuming country in the world. We are dedicated to the production and marketing of potash and langbeinite, whereas nearly all of our competitors are meaningfully diversified, primarily into other fertilizer and chemical businesses. As a dedicated potash producer, we believe our financial performance is subject to less volatility than that of other fertilizer companies. Historically, potash prices have been subject to less volatility than prices for other fertilizers and commodity chemicals. In addition, the costs to mine and produce potash are relatively fixed and stable, whereas the costs to produce other fertilizers have significantly greater exposure to volatile raw material costs, such as natural gas used to produce nitrogen and phosphate products.

 

After the completion of this offering, we will be one of two publicly-traded potash-only companies producing today, the other being Uralkali, a Russian producer. As a U.S. producer, we enjoy a significantly lower total tax and royalty burden than our primary competitors, which are located in Saskatchewan, Canada.

 

   

Assets located near our primary customer base. Our mines are advantageously located near our largest customers. We believe that our location allows us to incur lower freight costs than our competitors, who must ship their products across longer distances to consuming markets, which are often export

 

 

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markets. Also, because consumption of potash in our core markets exceeds our production capabilities, we can target sales to the markets in which we have the greatest transportation advantage, maximizing our net sales per ton. Our access to strategic rail destination points and our location along major agricultural trucking routes support this advantage. In addition, our location in an oil and gas producing region allows us to serve industrial customers, the majority of whom we reach by truck. Our geographic advantage is difficult for competitors to erode, particularly in an environment of historically high and rising transportation costs.

 

The chart below sets forth what we believe to be our average net sales per ton advantage, which results primarily from our freight cost advantage, over our primary Canadian competitors per product ton of potassium chloride for each of 2006, 2005 and 2004.

 

      2006    2005    2004

Intrepid Potash net sales per ton advantage(1)

   $ 41    $ 27    $ 13
 
 

(1)

 

Based on net sales per ton for Agrium, Mosaic and PCS for muriate of potash only. Mosaic’s MOP revenues were calculated by subtracting langbeinite-only revenues, assuming $100 net sales per ton for langbeinite (K-Mag®).

 

    Diversification into niche markets. We sell to three different markets for potash—the agricultural, industrial and feed markets. During the nine months ended September 30, 2007, these markets represented approximately 64%, 30% and 6% of our potash sales, respectively. According to the IFA, 95% of all potash produced is used as a fertilizer. As a result, we believe our sales are diversified across more distinct, unrelated consumer markets than those of many of our competitors, adding stability to our potash revenues. In addition, according to SRI Consulting, U.S. industrial consumption of potash is growing rapidly relative to the agricultural market, with a compound annual growth rate of 5.1% from 1990 to 2005.

 

         We are one of two exporting producers of langbeinite in the world. Both producing facilities are located in Carlsbad, New Mexico. Given the greater scarcity of langbeinite relative to potash and its agronomic suitability for certain soils and crops, there is demand for our langbeinite production outside of our core potash markets. PCS markets our langbeinite production outside North America. This relationship gives us access to PCS’ extensive international sales network and informs us about developments in the international market. During the nine months ended September 30, 2007, we sold 131,600 tons of langbeinite, representing 16.2% of our total product tons sold during this period.

 

    Significant reserve life and water rights. Our potash and langbeinite reserves each have substantial life, with remaining reserve life ranging from 30 to 124 years. This lasting reserve base is the result of our past acquisition and development strategy. In addition to our reserves, we have access to significant mineralized deposits for potential future exploitation and valuable water rights.

 

    Valuable existing facilities and infrastructure. Constructing a new potash production facility requires extensive capital investment in mining, milling and infrastructure, which is expensive and requires substantial time to complete. Our five operating facilities and the HB Mine already have significant facilities and infrastructure in place. We have the ability to expand our business using existing installed infrastructure, in less time and with lower expenditures than would be required to construct entirely new mines.

 

    Track record of innovation and modernization. Our management team has a history of building successful operations through the acquisition of underutilized assets, followed by creative use of technology to increase productivity and reliability. As an entrepreneurial, potash-only producer, we have devoted considerable management attention to each facility, with a focus on modernization and improving production. We have applied technologies from other industries, including the oil and gas industry, and implemented innovative production processes. From inception to date, we have spent $69.9 million on capital improvements at our facilities. We believe these investments have enhanced the reliability and productivity of our operations.

 

 

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    Low-cost solar evaporation operations. The Moab Mine and the Wendover Facility, both located in the Utah desert, use solar evaporation to crystallize potash from brines. Solar evaporation is a low-cost and energy-efficient method of producing potash. Our understanding and application of solution mining, combined with our location in regions with favorable climates for evaporation, allow our Utah facilities to enjoy low production costs. We plan to develop the HB Mine using the same solar evaporation and solution mining technology we use at our Moab Mine.

 

Our Business Strategy

 

   

Expand potash production from existing facilities. We have expansion opportunities at our operating facilities that we expect will significantly increase production, drive down our unit cost per ton and increase our cash flow. Because of our market share, we believe increases in our production have limited effect on international potash prices, allowing us to enjoy expanding margins on incremental production through full price realization and decreasing production costs per ton. We estimate that these opportunities will increase potash production by an expected aggregate of over 110,000 tons annually over the next five to seven years.

 

   

Reopen the HB Mine as a solution mine. The HB Mine, located in Carlsbad, New Mexico, was formerly operated as a conventional underground mine and was idled in 1997 by its previous owner. We are in the process of reopening the HB Mine as a solution mine, using the same solar evaporation and solution mining technology we currently use at our Moab Mine. We believe the HB Mine is especially suitable for solution mining due to the easily accessible mineral resource and our ability to rely in part on existing equipment and personnel to process potash. We expect production from the HB Mine to begin in 2009 and believe Phase I of the project has the potential to ultimately add up to 150,000 to 200,000 tons of additional potash production annually by 2011. We expect the potash produced from the mine to be our lowest-cost product on a per-ton basis.

 

   

Expand langbeinite production and demand. We are one of two exporting producers of langbeinite. We mine langbeinite in Carlsbad, New Mexico from the only known reserves of langbeinite in the world. In order to better capitalize on the strong and growing demand for langbeinite, we have initiated two projects that we expect will allow us to increase our annual langbeinite production by approximately 90,000 tons over the next three to four years and lower our production costs per ton.

 

   

Increase our profitability. We will continue to seek to increase our profitability both by targeting sales to our most profitable markets and reducing costs. We plan to execute on additional opportunities to further reduce our fixed and variable operating expenses and pursue various projects designed to increase the reliability of our mining facilities and minimize production downtime.

 

Formation Transactions and Organizational Structure

 

General

 

Intrepid Potash is a Delaware corporation that was formed on November 19, 2007 and is a wholly-owned subsidiary of Intrepid Mining. In connection with this offering, we will enter into the following transactions, which we refer to in this prospectus as the “formation transactions”:

 

At or before the completion of this offering, Intrepid Potash and Intrepid Mining will enter into an exchange agreement, which will provide for the assignment of all of Intrepid Mining’s assets other than cash to Intrepid Potash in exchange for:

 

   

cash in an amount of $            (approximately     % of the net proceeds from this offering);

 

   

            shares of common stock of Intrepid Potash; and

 

   

the assumption by Intrepid Potash of $            million of Intrepid Mining’s liability under its existing senior credit facility and all other existing liabilities of Intrepid Mining.

 

 

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The transactions provided for in the exchange agreement and this offering will be consummated simultaneously. The foregoing dollar and share figures assume in all cases that the underwriters’ option to purchase additional shares of common stock is not exercised.

 

As a part of the formation transactions, we will declare a dividend with respect to our common stock currently issued and outstanding, which we refer to in this prospectus as the “formation distribution”. The formation distribution will be paid in             shares of our common stock; provided, however, that for each share of our common stock purchased by the underwriters pursuant to their over-allotment option, the number of shares payable pursuant to the formation distribution will be reduced, one-for-one, and in lieu of such shares, we will pay cash in an amount equal to the net proceeds, before offering expenses but after underwriting discounts and commissions, we receive from the exercise of the underwriters’ over-allotment option. The formation distribution will be payable to Intrepid Mining, the holder of record of the common stock prior to this offering, upon the earlier of the expiration of the underwriters’ over-allotment option period or the exercise of the over-allotment option.

 

After the completion of this offering, Intrepid Mining will satisfy its liabilities, liquidate and distribute its remaining assets, including the cash and common stock received pursuant to the exchange agreement and the right to receive the formation distribution described above, to the current members of Intrepid Mining.

 

Organizational Structure After the Formation Transactions

 

The following diagram depicts our organizational structure after giving effect to the offering and the related formation transactions, assuming that the underwriters do not exercise any portion of their option to purchase additional shares of common stock to cover over-allotments (and, therefore, that              shares will be distributed to the current members of Intrepid Mining pursuant to the formation distribution):

 

LOGO

 

 

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Principal Executive Offices and Internet Address

 

Our principal executive offices are located at 700 17th Street, Suite 1700, Denver, Colorado 80202 and our telephone number is (303) 296-3006. Our website is located at www.intrepidpotash.com. We expect to make our periodic reports and other information filed with or furnished to the Securities and Exchange Commission, or SEC, available, free of charge, through our website as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.

 

 

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THE OFFERING

 

Common stock offered by us

             shares.

 

Common stock outstanding after this offering

             shares (including              shares that will be sold to the underwriters pursuant to the exercise of their over-allotment option or, to the extent the over-allotment option is not exercised, distributed to the current members of Intrepid Mining pursuant to the formation distribution).

 

Use of proceeds

We expect to receive net proceeds of approximately $             million from this offering, assuming an offering price of $             per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We expect to apply the net proceeds from this offering as follows:

 

   

approximately $             million (approximately     % of the net proceeds from this offering) will be paid to Intrepid Mining (together with              shares of our common stock) in exchange for all of Intrepid Mining’s assets other than cash; and

 

   

the remainder of the net proceeds will be used by us for repayment of debt under our existing senior credit facility.

 

To the extent that the underwriters exercise their over-allotment option, all of the net proceeds we receive from the exercise of the over-allotment option will be used to pay the formation distribution.

 

A $1.00 change in the assumed initial public offering price would change net proceeds to us from this offering by approximately $             million and would increase (decrease) the amount of net proceeds payable to Intrepid Mining pursuant to the exchange agreement. Assuming that the underwriters exercise their over-allotment option in full, a $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) net proceeds to us from the exercise of the over-allotment option by approximately $         million and would increase (decrease) the cash payable pursuant to the formation distribution. Any amount of the formation distribution that is not paid in cash will be paid in shares of our common stock.

 

In addition, we will assume $             million of Intrepid Mining’s liability under its existing senior credit facility and all other existing liabilities of Intrepid Mining.

 

After the completion of this offering, Intrepid Mining will satisfy the $             million liability under its existing senior credit facility that was not assumed by Intrepid Potash pursuant to the terms of the exchange agreement and any remaining liabilities, liquidate and distribute its remaining assets, including the cash and common stock received pursuant to the exchange agreement and the right to receive the formation distribution, to the current members of Intrepid Mining.

 

Voting rights

One vote per share.

 

 

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Exchange listing

We intend to apply to list our common stock on a national securities exchange.

 

Risk factors

See “Risk Factors” beginning on page 13 and other information included in this prospectus for a discussion of factors you should carefully consider before deciding whether to invest in our common stock.

 

The number of shares of common stock to be outstanding after this offering is based on             shares of our common stock outstanding as of                     , 2007. Except as otherwise indicated or required by context, all information in this prospectus assumes that:

 

   

the underwriters will not exercise any portion of their option to purchase additional shares to cover over-allotments (and, therefore, that                  shares will be distributed to the current members of Intrepid Mining pursuant to the formation distribution); and

 

   

the initial offering price is $            per share, the midpoint of the range set forth on the cover page of this prospectus.

 

 

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Summary Historical and Pro Forma Combined Financial and Operating Data

 

The following tables show summary historical financial and operating data of Intrepid Mining and pro forma combined financial and operating data of Intrepid Mining and Intrepid Potash for the periods and as of the dates indicated. The historical financial statements included in this prospectus reflect the results of operations of Intrepid Mining. The summary historical financial data for the nine months ended September 30, 2007 and the nine months ended September 30, 2006 are derived from Intrepid Mining’s unaudited financial statements and related notes included elsewhere in this prospectus. The summary historical financial data as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004 are derived from Intrepid Mining’s audited financial statements and related notes included elsewhere in this prospectus. The summary pro forma combined financial data for the nine months ended September 30, 2007 and for the year ended December 31, 2006 are derived from the unaudited pro forma combined financial statements of Intrepid Mining and Intrepid Potash included elsewhere in this prospectus. The pro forma adjustments have been prepared as if certain transactions to be effected upon completion of this offering had taken place on September 30, 2007, in the case of the pro forma combined balance sheet, or as of January 1, 2006, in the case of the pro forma combined statements of operations for the nine months ended September 30, 2007 and for the year ended December 31, 2006. The transactions reflected in the pro forma adjustments assume that Intrepid Potash will complete its initial public offering of common stock, acquire all of the assets of Intrepid Mining other than cash, and assume $         million of Intrepid Mining’s liability under its existing senior credit facility and all other existing liabilities of Intrepid Mining. The pro forma combined financial information should not be relied upon as being indicative of Intrepid Potash or Intrepid Mining’s results of operations or financial condition had the transactions been completed on January 1, 2006, with respect to the pro forma combined statements of operations, or as of September 30, 2007, with respect to the pro forma combined balance sheet.

 

The summary historical and pro forma combined financial and operating data should be read in conjunction with the information contained in “Selected Historical and Pro Forma Combined Financial and Operating Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes of Intrepid Mining and Intrepid Potash included elsewhere in this prospectus.

 

   

Pro Forma

September 30,
2007

 

Nine Months Ended

September 30,

   

Pro Forma

December 31,
2006

  Year Ended December 31,  
      2007   2006       2006     2005     2004  
        (unaudited)                        
    (in thousands, except per share data)  

Statement of Operations Data:

             

Net sales:

             

U.S.

  $                $ 130,897   $ 95,107     $                $ 131,920     $ 135,682     $ 90,765  

International

      9,228     5,624         7,685       5,267       10,268  
                                                 

Total

      140,125     100,731         139,605       140,949       101,033  

Cost of goods sold

      99,263     78,804         113,949       99,051       68,913  
                                                 

Gross margin

      40,862     21,927         25,656       41,898       32,120  

Selling and administrative

      10,579     6,742         10,053       7,529       7,065  

Other operating—net

      434     (487 )       (4,386 )     329       327  
                                                 

Operating income

      29,849     15,672         19,989       34,040       24,728  

Interest expense

      6,587     2,083         2,907       1,473       1,802  

Other non-operating

      128     193         (7,016 )     (47 )     (195 )
                                                 

Income from continuing operations

    $ 23,134   $ 13,396       $ 24,098     $ 32,614     $ 23,121  
                                         

Pro forma income tax(1)

             
                     

Pro forma income from continuing operations

  $         $        
                     

Pro Forma Share and Per Share Data (unaudited)(2):

             

Pro forma basic and diluted net income (loss) per share

  $         $        
                     

Pro forma weighted average shares outstanding—basic and diluted

             
                     

 

(footnotes on following page)

 

 

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    Pro Forma
September 30,
2007
  Nine Months Ended
September 30,
    Pro Forma
December 31,
2006
  Year Ended December 31,  
      2007     2006       2006     2005     2004  
        (unaudited)                        
    (in thousands)  

Other Financial Data:

             

EBITDA(3)

  $     $ 36,152     $ 21,276     $     $ 35,033     $ 39,580     $ 28,445  

Depreciation, depletion, amortization and accretion

      6,431       5,797         8,028       5,493       3,522  

Capital expenditures

      (21,317 )     (5,145 )       (13,125 )     (21,732 )     (8,936 )

Acquisition costs

                                (38,473 )
    Pro Forma
September 30,
2007
  Nine Months Ended
September 30,
    Pro Forma
December 31,
2006
  Year Ended December 31,  
      2007     2006       2006     2005     2004  
        (unaudited)                        

Selected Operating Data:

             

Sales volume (in thousand tons):

             

Potash

      679       519         729       869       846  

Langbeinite

      132       69         95       6        

Average net selling prices (per ton):

             

Potash

  $     $ 185.15     $ 180.03     $     $ 177.51     $ 161.28     $ 119.43  

Langbeinite

      108.45       104.63         105.50       107.82        

Potash cost of goods sold (per ton):

             

Cost of production less inventory adjustments

      123.87       135.12         139.86       111.04       81.38  

Depreciation, depletion and amortization

      6.57       7.79         7.81       4.81       2.88  

Royalties

      6.62       6.01         6.01       3.50       2.60  

By-product revenues(4)

      (7.27 )     (8.47 )       (8.95 )     (6.82 )     (5.40 )
                                                   

Total

      129.79       140.45         144.73       112.53       81.46  
                                                   

Average potash gross margin
(per ton)

  $     $ 55.36     $ 39.58     $     $ 32.78     $ 48.75     $ 37.97  
                                                   
    Pro Forma
September 30,
2007
  Nine Months Ended
September 30,
    Pro Forma
December 31,
2006
  Year Ended December 31,  
      2007     2006       2006     2005     2004  
        (unaudited)                        
    (in thousands)  

Selected Balance Sheet Data:

             

Cash and cash equivalents

  $                $ 2,490     $     $                $ 286     $ 157     $ 2,169  

Total current assets

      41,622       43,631         50,853       29,124       33,726  

Total assets

      137,868       124,648         129,314       106,506       90,310  

Total current liabilities

      24,135       16,533         24,112       19,061       24,578  

Total debt

      90,822       46,785         132,189       37,156       36,387  

Stockholders’ equity (deficit)

      18,926       50,761         (31,458 )     42,485       23,192  

  (1)   A pro forma provision for income taxes at statutory rates has been made in the pro forma financial statements on the assumption that Intrepid Mining was a taxable entity for the respective periods. As a limited liability company, Intrepid Mining’s taxable income was included in its members’ income tax returns whereas Intrepid Potash will be subject to income tax as a corporation.
  (2)   Pro forma net income (loss) per share is based on the weighted average number of shares of common stock outstanding after giving effect to the offering, assuming that the offering had occurred as of the beginning of the earliest period presented.

 

 

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  (3)   We define EBITDA as net income before interest, income taxes, depreciation, depletion, amortization and accretion. EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements to assess:

 

   

the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;

 

   

our operating performance and return on capital as compared to other companies in the fertilizer business, without regard to financing or capital structure; and

 

   

the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

 

The economic substance behind management’s use of EBITDA is to measure the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and pay dividends, if any, to our investors.

 

The GAAP measure most directly comparable to EBITDA is net income. Our non-GAAP financial measure of EBITDA should not be considered as an alternative to GAAP net income. EBITDA is not a presentation made in accordance with GAAP and has important limitations as an analytical tool. You should not consider EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because EBITDA excludes some, but not all, items that affect net income and is defined differently by different companies in our industry, our definition of EBITDA may not be comparable to similarly titled measures of other companies.

 

Management compensates for the limitations of EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this information into management’s decision-making processes.

 

EBITDA is calculated and reconciled to income from continuing operations in the table below:

 

      Nine Months Ended
September 30,
   Year Ended December 31,
      2007    2006    2006    2005    2004
     (unaudited)               
     (in thousands)

Calculation of EBITDA:

              

Income from continuing operations

   $ 23,134    $ 13,396    $ 24,098    $ 32,614    $ 23,121

Interest—net

     6,587      2,083      2,907      1,473      1,802

Depreciation, depletion, amortization and accretion

     6,431      5,797      8,028      5,493      3,522
                                  

EBITDA

   $ 36,152    $ 21,276    $ 35,033    $ 39,580    $ 28,445
                                  

 

  (4)   When by-product inventories are sold, a by-product credit to the cost of goods sold is recognized.

 

 

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RISK FACTORS

 

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors together with all of the other information included in this prospectus in evaluating an investment in our common stock. If any of the following risks were actually to occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline and you could lose all or part of your investment.

 

Risks Related to Our Business

 

Our potash sales are subject to price and demand volatility resulting from periodic imbalances of supply and demand, which may negatively affect our operating results.

 

Historically, the market for potash has been cyclical, and the prices and demand for potash have fluctuated. Periods of high demand, increasing profits and high capacity utilization tend to lead to new plant investment and increased production. This growth continues until the market is over-saturated, leading to decreased prices and capacity utilization until the cycle repeats. Furthermore, potash producers have, at various times, suspended production in response to delayed purchasing decisions by potash customers in anticipation of lower prices. For example, in 2006, protracted negotiations between China and international producers delayed purchases of potash by the Chinese, which led to a build-up of inventory in North America. In response, suppliers slowed production of potash, notably in Canada and Russia, until the conclusion of negotiations with the Chinese. As a result, the price of potash has been volatile. This volume and price volatility may reduce profit margins and negatively affect our operating results. We sell the majority of our potash into the spot market in the U.S. and have no long-term or material short-term contracts for the sale of potash. In addition, there is no active hedge market for potash as compared to the gold market, for example. As a result, we do not have and cannot obtain protection from this volume and price volatility.

 

Mining is a complex and hazardous process which frequently experiences production disruptions, and the nature of our operations may make us more vulnerable to such disruptions than our competitors.

 

The process of mining is complex and equipment- and labor-intensive, and involves risks and hazards including environmental hazards, industrial accidents, labor disputes, unusual or unexpected geological conditions or acts of nature. Production delays can occur due to equipment failures, unforeseen mining problems and other unexpected events. For example, in December 2007, an outage at one of our power provider’s transformers caused three days of lost production at our West Mine. In addition, we must transport mined product for long distances to remove it from the mines for processing, which creates a higher probability of accidents. Our facilities and equipment are older than the average North American potash mine and may require more maintenance or be more likely to fail than newer facilities or equipment. Our shafts at our West Mine were constructed in 1932 and require frequent maintenance due to water inflow, wooden structure and salt buildup and are located in an area of known subsidence. Additionally, langbeinite ore is harder and more abrasive than muriate of potash ore and has caused greater wear on our mining and milling equipment, which has increased and may continue to increase the expense and frequency of maintenance and repairs. Operational difficulties can also arise from our milling processes; for example, our East Mine mill experiences build-ups of glaserite, an undesirable by-product of langbeinite production, and we must remove this build-up. The amounts that we are required to spend on maintenance and repairs may be significant and higher than expected, and we may have to divert resources from our planned capital expenditures focused on growth, such as increases in nameplate and effective capacity, for use on capital expenditures to maintain existing effective capacity. Production delays or stoppages will adversely affect our sales and operating results, and higher than expected maintenance and repair expenses may adversely affect our operating results.

 

New product supply can create structural market imbalances, which could negatively affect our operating results and financial performance.

 

Potash is a commodity, and the market for potash is highly competitive and affected by global supply and demand. With recent favorable prices for potash products, producers have been, and will likely continue to be,

 

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engaged in expansion and development projects to increase production. Many of these projects to increase potash production are speculative. However, if potash production is increased beyond potash demand, the price at which we sell our potash and our sales volume would likely fall, which would materially adversely affect our operating results and financial condition.

 

The grade of ore that we mine may vary from our projections due to the complex geology of potash reserves, which could adversely affect our potash production and our financial results.

 

Our potash production is affected by the ore grade, or potassium content of the ore. Our projections of ore grade may vary from time to time, and the amount of potash that we actually produce may vary substantially from our projections. There are numerous uncertainties inherent in estimating ore grade, including many factors beyond our control. Potash ore bodies have complex geology. The occurrence of large, unknown salt deposits, known as salt horsts, in core ore areas located in Carlsbad, New Mexico or Moab, Utah would adversely affect ore grades. An unexpected reduction in the grade of our ore reserves would decrease our potash production because we would need to process more ore to produce the same amount of saleable-grade product. As a result, our expected future cash flows would be materially adversely affected.

 

Our reserve estimates depend on many assumptions that may be inaccurate, which could materially adversely affect the quantities and value of our reserves.

 

Our reserve estimates may vary substantially from the actual amounts of muriate of potash and langbeinite we may be able to economically recover from our reserves. There are numerous uncertainties inherent in estimating quantities of reserves, including many factors beyond our control. Estimates of muriate of potash and langbeinite reserves necessarily depend upon a number of variables and assumptions, any one of which, if incorrect, may result in an estimate that varies considerably from actual results. These factors and assumptions relate to:

 

   

future potash prices, operating costs, capital expenditures, royalties, severance and excise taxes and development and reclamation costs;

 

   

future mining technology improvements;

 

   

the effects of regulation by governmental agencies; and

 

   

geologic and mining conditions, which may not be fully identified by available exploration data and may differ from our experiences in areas where we currently mine or operate.

 

Because reserves are only estimates, they cannot be audited for the purpose of verifying exactness. Instead, reserve information is reviewed by a reserve engineer in sufficient detail to determine if, in the aggregate, the data provided by us are reasonable and sufficient to estimate reserves in conformity with practices and standards generally employed by and within the mining industry and that are consistent with the requirements of U.S. securities laws.

 

Our business depends upon skilled and experienced personnel, and employee turnover may have a material adverse effect on our development and operating results.

 

The success of our business depends upon our ability to attract and retain skilled managers and other personnel. We compete for experienced laborers with other industries, including a copper mine in Moab, Utah, a nuclear waste management facility in southeast New Mexico, and oil fields and other potash facilities in Carlsbad, New Mexico. A new uranium enrichment facility in Eunice, New Mexico has just begun construction. Employee turnover in Carlsbad has generally been high, and the continued expansion of nuclear facilities in Carlsbad threatens to increase competition for qualified workers. If we are not able to attract and retain the personnel necessary for the development of our business, we may have to raise wages to keep employees or hire less qualified workers, either of which would ultimately result in higher labor costs per ton of potash produced.

 

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Prices of natural gas and other important raw materials and energy used in our businesses are volatile. Changes in the prices of raw materials or energy or disruptions to supply could adversely impact our business and our sales.

 

Natural gas, electricity, steel, water, chemicals and fuel (diesel and gasoline) are key raw materials used in our production of potash products. Natural gas is a significant energy source used in the solution mining process at the Moab Mine and at the East Mine processing plant. Our sales and profitability from time to time have been and may in the future be impacted by the price and availability of these raw materials and other energy costs. Currently, we have no derivative contracts in place for 2008 with respect to natural gas or other raw materials, although we will continue to evaluate the possibility of entering into such arrangements in the future. A significant increase in the price of natural gas, electricity and fuel that is not recovered through an increase in the price of our potash, or an extended interruption in the supply of natural gas, electricity, water or fuel to our production facilities, could materially adversely affect our business, financial condition or operating results. High natural gas costs also may increase farm input costs, which may cause our potash sales to decline.

 

The price of natural gas in North America is highly volatile. Since January 2004, natural gas prices according to the El Paso Natural Gas. Co. Permian Basin Index, on which the prices we pay for natural gas are primarily based, have ranged from a high of $10.75 per MMBtu in November 2005 to a low of $3.57 per MMBtu in October 2006. Steel is a commodity that is also subject to volatile pricing. Since January 2004, hot rolled steel prices have ranged from a high of $780 per ton in August 2004 to a low of $360 per ton in January 2004. Our forecasts of capital expenditures are based on assumptions with respect to prices of skilled labor and commodities, including steel and concrete. We cannot predict future commodity prices, and if such prices are higher than expected, we may lose sales to competitors with lower production costs, our profitability could be materially adversely affected and our capital expenditures could increase.

 

Aggressive pricing strategies by our competitors could materially adversely affect our sales and profitability.

 

Many of our competitors have significantly larger operations than we do and mine potash from reserves that are thicker, higher-grade and less geologically complex than our reserves. The large size of some of our competitors may give them greater leverage in pricing negotiations with customers and may enable them to negotiate better rates for transportation of products sold. The nature of our competitors’ reserves and the economies of scale of their operations may allow them to mine their potash at a lower cost. If one or more of these competitors were to decide for any reason to aggressively lower prices in an attempt to increase their sales, our size and cost structure might not allow us to match that pricing, such that we would likely lose sales and our operating results and profitability would be materially adversely affected.

 

Any decline in U.S. agricultural production or limitations on the use of our products for agricultural purposes could materially adversely affect the market for our products.

 

Conditions in the U.S. agricultural industry can significantly impact our operating results. The U.S. agricultural industry can be affected by a number of factors, including weather patterns and field conditions, current and projected grain inventories and prices, the domestic and international demand for U.S. agricultural products and U.S. and foreign policies regarding trade in agricultural products.

 

State and federal governmental policies, including farm and ethanol subsidies and commodity support programs, may also directly or indirectly influence the number of acres planted, the mix of crops planted and the use of fertilizers for particular agricultural applications. In addition, several states are currently considering limitations on the use and application of fertilizers due to concerns about the impact of these products on the environment.

 

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A decline in oil and gas drilling or a reduction in the use of potash in drilling fluids in the Permian Basin or Rocky Mountain regions would increase our operating costs and decrease our average net sales per ton of potash.

 

A significant portion of our sales consists of sales of standard potash for use in oil and gas drilling fluids in the Permian Basin and Rocky Mountain regions. If oil and gas drilling were to decline significantly, we would be required to compact our standard product in order to sell it into the agricultural market, which would increase our production costs. Furthermore, our net sales per ton for these additional agricultural tons would likely be lower than the industrial sales they would replace, as agricultural sales may require transportation to more distant delivery points. Alternative products that have some of the clay-inhibiting properties of potash in oil and gas drilling fluids are commercially available. As the price of potash increases, these alternative products may replace some of our sales of standard potash, which would reduce our industrial sales and result in the same increases in production costs and decreases in net sales per ton.

 

Some of our competitors have greater capital and human resources than we do, which may place us at a competitive disadvantage and adversely affect our sales and profitability.

 

We compete with a number of producers in North America and throughout the world. Some of these competitors may have greater total resources than we do. Competition in our product lines is based on a number of considerations, including product performance, transportation costs, brand reputation, price and quality of client service and support. To remain competitive, we need to invest continuously in production infrastructure, marketing and customer relationships. We may have to adjust the prices of some of our products to stay competitive. We may also need to borrow funds and become more highly leveraged. We may not have sufficient resources to continue to make such investments or maintain our competitive position relative to some of our competitors who have greater capital and human resources. To the extent other potash producers enjoy competitive advantages, the price of our products, our sales volumes and our profits could be materially adversely affected.

 

A shortage of railcars and trucks for carrying our products as well as increased transit time could result in customer dissatisfaction, loss of production or sales and higher transportation or equipment costs.

 

We rely heavily upon truck and rail transportation to deliver our products to our customers. In addition, the cost of transportation is an important component of the price of our products. Identifying and securing affordable and dependable transportation is important in supplying our customers and, to some extent, in the delivery to us of chemicals and other supplies and equipment for our mining operations. A shortage of railcars for carrying product as well as increased transit time in North America due to congestion in the rail system could prevent us from making timely delivery to our customers or lead to higher transportation costs, either of which could result in customer dissatisfaction or loss of sales. In addition, PCS, which markets our products outside North America, may have difficulty obtaining access to ships for sales of our products overseas. Higher costs for transportation services or an interruption or slowdown in these transport services due to high demand, labor disputes, adverse weather or other environmental events, or changes to rail systems, would negatively affect our ability to deliver products to our customers, which would harm our performance and operating results.

 

The seasonal demand for our products and the variations in our cash flows from quarter to quarter may have an adverse effect on our operating results and make the price of our common stock more volatile.

 

The fertilizer business is seasonal, with operating results that vary from quarter to quarter as a result of crop growing and harvesting seasons and weather conditions, as well as other factors. Over the last three years, we have averaged 28% of our annual potash sales volume during the three-month period from February through April, when the demand for fertilizer typically peaks. We and our customers generally build inventories during low-demand periods of the year in order to ensure timely product availability during peak sales seasons. The seasonality of crop nutrient demand results in our sales volumes and net sales revenue typically being the highest during the North American spring season and our working capital requirements typically being the highest just

 

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before the start of the spring season. Our quarterly financial results can vary significantly from one year to the next due to weather-related shifts in planting schedules and purchasing patterns. If seasonal demand exceeds our projections, our customers may acquire products from our competitors, and our profitability could be materially reduced as a result. If seasonal demand is less than we expect, we will be left with excess inventory and higher working capital and liquidity requirements.

 

We rely on our innovative senior management personnel for the development and execution of our business strategy, and the loss of any member of our senior management team may have a material adverse effect on our growth and operating results.

 

The innovative ideas developed by our senior management team are largely responsible for the success of our business. Each of our executives has over 25 years of relevant industry experience, and have developed and implemented first-of-their-kind processes that we currently use in our business. The loss of the services of any of our key executives could prevent us from achieving our business strategies or limit our business growth and operating results. We do not currently maintain “key person” life insurance on any of our key executives.

 

Weakening of the Canadian dollar and Russian ruble against the U.S. dollar could lead to lower domestic potash prices, which would adversely affect our operating results, and fluctuations in these currencies may cause our operating results and our stock price to fluctuate.

 

The U.S. imports the majority of its potash from Canada and Russia. As the Canadian dollar, or the looney, and the Russian ruble strengthen in comparison to the U.S. dollar, foreign suppliers realize a smaller margin in their local currencies unless they increase their nominal U.S. dollar prices. In 2006, the looney and ruble strengthened to 87 cents and 3.65 cents, respectively, compared to the U.S. dollar. As of December 14, 2007, the looney and ruble were trading at 98.58 cents and 4.09 cents, respectively, against the U.S. dollar. The continued strengthening of the looney and ruble thus tend to support higher U.S. potash prices, as Canadian and Russian potash producers attempt to maintain their margins. However, if the looney and ruble were to weaken in comparison to the U.S. dollar, foreign competitors may choose to lower prices significantly to increase sales volumes. A decrease in the net realized sales price of our potash would adversely affect our operating results, and the potential for volatility in potash prices may cause our operating results to vary significantly from quarter to quarter, which may create volatility in our stock price.

 

Existing and further oil and gas development in the “Potash Area” in New Mexico could result in methane gas leaking into our mines that could result in the loss of life and significant property damage, and require indefinite suspension of operations unless extensive modifications were made to the mines.

 

Our New Mexico operations are primarily on leased federal land administered by the Bureau of Land Management, or BLM, in the 497,000-acre “Potash Area” established by a 1986 order of the U.S. Secretary of the Interior. Under our leases, the BLM retains the right to permit other uses of the land on which our leases are located. The Potash Area also contains significant oil and gas deposits that are below our potash reserves, and approximately 3,000 oil and gas wells have been drilled in the Potash Area. Several oil and gas companies are actively seeking BLM and state permits to drill additional wells in the Potash Area.

 

Oil and gas drilling near our mines poses risks to our operations. The subsidence of the surface and underlying strata that occurs following completion of mining operations will damage the casing of any oil or gas well located within the subsidence area. That damage may result in methane gas escaping from the well and migrating through surrounding strata into our mines. Methane gas could also leak from a well located outside the subsidence area and migrate into a mine. We test our mines for methane gas daily; however, unlike coal mines which are constructed and equipped to handle the presence of methane gas, our mines are not constructed or equipped to deal with methane gas. Any intrusion of methane gas into our mines could cause an explosion resulting in loss of life and significant property damage and require suspension of all mining operations until the completion of extensive modifications and reequipping of the mine. The costs of modifying our mines and

 

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equipment could make it uneconomic to reopen our mines because our liability, casualty and business interruption insurance would not be adequate to cover such catastrophic events.

 

Existing and further oil and gas development in the Potash Area in New Mexico could prevent us from mining potash reserves or deposits within the necessary safety pillar around oil and gas wells.

 

The drilling of oil and gas wells in the Potash Area is regulated by the 1986 order of the U.S. Secretary of the Interior as to federal lands (which constitute the vast majority of the Potash Area). Similar State of New Mexico regulations govern state and fee lands in the Potash Area. The Secretary’s order and related regulations, with certain exceptions, restrict oil and gas drilling that would result in the undue waste of potash or would constitute a safety hazard to potash miners. Drilling that does not immediately affect our current operations may limit our ability to mine valuable potash reserves or deposits in the future because safety considerations require that mining operations not be conducted close to a well, even if the well is inactive. As a result, we will be unable to mine potash located within the appropriate “safety pillar” around an oil or gas well. We review applications for permits to drill oil and gas wells as they are filed with the BLM and generally protest applications for drilling permits that we believe may impair our ability to mine our potash reserves or deposits. We may not prevail in any such protest or be able to prevent wells from being drilled in the vicinity of our potash reserves or deposits. Our potash reserves or deposits may be significantly impaired if, notwithstanding our protests and appeals, a sufficient number of wells are drilled through or near our potash reserves or deposits. We expect oil and gas companies to continue to seek drilling permits and to contest our efforts to restrict drilling within the Potash Area.

 

We have recently lobbied extensively to cause a reassessment by the BLM and Department of the Interior of their policies concerning granting of oil and gas drilling permits in the Potash Area in order to protect our existing operations and future potash reserves or deposits from the adverse effects of oil and gas drilling. In July 2007, the Department of the Interior said that it will conduct a new study on the safety of developing oil and gas wells in the Potash Area and that another study had been undertaken to update maps of the potash resource within the Potash Area. The outcome of these studies will affect the future issuance of drilling permits that could adversely affect our mining operations and the value of our potash reserves or deposits.

 

Our operations depend on our having received and maintained the required permits and approvals from and lease negotiations with governmental authorities.

 

We hold numerous governmental, environmental, mining and other permits and approvals authorizing operations at each of our facilities. A decision by a governmental agency to deny or delay issuing a new or renewed permit or approval, or to revoke or substantially modify an existing permit or approval, could prevent or limit our ability to continue operations at the affected facility and have a material adverse effect on our business, financial condition and operating results. Expansion of our existing operations also would require securing the necessary environmental and other permits and approvals, which we may not receive in a timely manner if at all. In addition, the federal government may require an environmental assessment or environmental impact statement as a condition of approving a project or permit, which could result in additional time delays and costs. Furthermore, our mining operations take place on land that is leased from federal and state governmental authorities. Expansion of our existing operations may require securing additional federal and state leases, which we may not obtain in a timely manner, if at all. In addition, our existing leases generally require us to commence mining operations within a specified time frame and to continue mining in order to retain the lease. The loss of a lease could adversely affect our ability to mine the associated reserves. Also, our existing leases require us to make royalty payments based on the revenue generated by the potash we produce from the leased land. The royalty rates are subject to change, which may lead to significant increases, at the time we renew our leases. As of September 30, 2007, approximately 30% of our state and federal lease acres at our New Mexico operations and approximately 18% of our state and federal lease acres at our Utah operations will be up for renewal within the next five years. Increases in royalty rates would reduce our profit margins and, if such increases were significant, would adversely affect our operating results.

 

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Our preliminary plans for reopening the HB Mine and developing additional strategic growth opportunities may not be implemented or may require more time and greater capital spending than we expect.

 

We currently plan to reopen the HB Mine as a solution mine. We have commissioned a feasibility study for the purpose of publicly reporting the reserves related to this project, which we expect to be completed before the end of 2007. The feasibility study may show that reopening the mine would be impractical or unprofitable, or we may otherwise choose not to pursue reopening the mine for other reasons. If we do proceed with this project, reopening the mine will be subject to significant expenses and risks and may never actually occur. We will require site approval and various permits from the State of New Mexico, which we may be unable to obtain in a timely manner or on reasonable terms, or at all. In addition, oil and gas lessors in the region may oppose our permitting process, which may further delay or prevent the reopening of the mine. Even if we obtain all required approvals, it will be several years before the mine produces potash, and construction of the solar ponds and refurbishing of the mine facilities may take longer or cost significantly more than we expect. We may be unable to produce potash economically from the HB Mine if reopened, or our profitability from the project may be lower than we expect.

 

We are also considering various other potential opportunities for revenue and strategic growth, including potentially reopening the idled North Mine. These potential plans are at an early stage, and we may not actually proceed with any of them. If we do choose to proceed with any such opportunity, the project may not succeed, despite our having made substantial investments; it may cost significantly more than we expect; or we may encounter additional risks which we cannot anticipate at this time.

 

The market for langbeinite is still developing and could be affected by new market entrants or the introduction of langbeinite alternatives.

 

Langbeinite, a low-chloride source of potassium, is produced by Intrepid Potash and Mosaic from the only known langbeinite reserves located in the Carlsbad, New Mexico region. The demand for langbeinite has been limited due mostly to its limited supply and availability, and it is difficult to determine how the supply, demand and pricing for langbeinite will develop. Furthermore, additional competition in the market for langbeinite and comparable products exists and may increase in the future. A German company is currently producing a low-chloride fertilizer similar to langbeinite, and Chinese producers are working on a project to synthesize langbeinite from brines, with a goal of producing significant amounts of langbeinite by 2010. We plan to sell a significant amount of langbeinite in China, and these sales may be reduced to the extent China is able to produce its own product internally. Other companies may currently or in the future seek to create and market chemically similar alternatives to langbeinite. The market for langbeinite and our langbeinite sales may be affected by the success of these and other competitive sources for langbeinite, which could materially adversely affect the viability of our langbeinite business and our operating results and financial condition.

 

Inflows of water into our potash mines from heavy rainfall or groundwater could result in increased costs and production down time and may require us to abandon a mine, either of which could adversely affect our operating results.

 

Major weather events such as heavy rainfall can result in water inflows into our mines. In October 2006, water inflows from rainfall caused unused utilities in a mine shaft at our West Mine to break loose and block the mine shaft. As a result, we were forced to shut down the West Mine for 54 days to remove the utilities and improve water controls in the shaft. The shutdown significantly lowered our 2006 potash production from the West Mine. Additionally, the presence of water-bearing strata in many underground mines carries the risk of water inflows into the mines. If we experience additional water inflows at our mines in the future, our employees could be injured and our equipment and mine shafts could be seriously damaged. We might be forced to shut down the affected mine temporarily, potentially resulting in significant production delays, and spend substantial funds to repair or replace damaged equipment. Inflows may also destabilize the mine shafts over time, resulting in safety hazards for employees and potentially leading to the permanent abandonment of a mine. We do not carry insurance to cover the risks of water inflows.

 

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Heavy fall precipitation or low evaporation rates at our Moab and Wendover facilities could delay our potash production at those facilities, which could adversely affect our sales and operating results.

 

Our facilities in Moab and Wendover, Utah use solar evaporation ponds to form potash crystals from brines. This process is limited by rainfall and evaporation rates. Heavy rainfall in September and October, just after the evaporation season ends, would temporarily reduce the amount of potash we can produce by causing the potash crystals to dissolve. Lower than average temperatures and higher than average seasonal rainfall reduce evaporation rates, which also would temporarily limit the amount of potash we are able to produce and push that production into later quarters or years. If these weather conditions occur at either or both of our Moab and Wendover facilities, we would have less potash available for sale and our sales and operating results could be materially adversely affected. In addition, we are investigating the installation of solar evaporation ponds in connection with the potential reopening of the HB Mine. As the number of our solar ponds increases, our production risks related to rainfall and evaporation rates will increase.

 

Environmental laws and regulations may subject us to significant liability and require us to incur additional costs in the future.

 

We are subject to many environmental, health and safety laws and regulations, including laws and regulations relating to mine safety, mine land reclamation, remediation of hazardous substance releases, and the regulation of discharges into the soil, air and water. Operations by us and our predecessors have involved the historical use and handling of regulated substances, refined petroleum products, potash, salt, related potash and salt by-products, and process tailings. These operations resulted, or may have resulted, in soil, surface water and groundwater contamination. At some locations, there are areas where salt-processing waste, building materials (including asbestos-containing transite) and ordinary trash may have been disposed or buried, and have since been closed and covered with soil and other materials. Under environmental remediation laws such as the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, liability is imposed, without regard to fault or to the legality of a party’s conduct, on certain categories of persons (known as “potentially responsible parties”) who are considered to have contributed to the release of “hazardous substances” into the environment. We may in the future incur material liabilities under CERCLA and other environmental remediation laws, with regard to our current or former facilities, adjacent or nearby third party facilities or off-site disposal locations. Under CERCLA, or its various state analogues, one party may, under some circumstances, be required to bear more than its proportional share of cleanup costs at a site where it has liability if payments cannot be obtained from other responsible parties. Liability under these laws involves inherent uncertainties.

 

Previously, governmental agencies have required us to undertake certain remedial activities to address identified site conditions. For example, we have worked with Utah officials to address asbestos-related issues at our Moab Mine. Many of our facilities also contain permitted asbestos landfills, some of which have been closed. Additionally, we are currently working with federal officials to resolve issues concerning the disposal of asbestos-containing transite at an unpermitted location at our West Mine, which may require additional removal of transite material, a land swap or another remedy.

 

Additionally, certain environmental laws, such as the U.S. Clean Water Act and the U.S. Clean Air Act, regulate and permit discharges of pollutants and contaminants into the environment. Violations of these environmental, health and safety laws are subject to civil, and in some cases criminal, sanctions. We may in the future incur material liabilities under the Clean Water Act, the Clean Air Act, or similar federal and state laws due to:

 

   

changes in the interpretation of environmental laws;

 

   

modifications to current environmental laws;

 

   

the issuance of more stringent environmental laws in the future; or

 

   

malfunctioning process or pollution control equipment.

 

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For example, our water disposal processes rely on dikes and reclamation ponds which could breach or leak, resulting in a possible release into the environment. Also, changes to existing environmental laws or permits, or the issuance of more stringent environmental laws or permits, could require additional equipment, facilities, or employees to address water disposal issues.

 

Mining and processing of potash also generates residual materials that must be managed both during the operation of the facility and upon facility closure. For example, potash tailings, consisting primarily of salt, iron and clay, are stored in surface disposal sites and require management. At least one of our New Mexico mining facilities, the HB Mine, may have issues regarding lead in the tailings pile. During the life of the tailings management areas, we have incurred and will continue to incur significant costs to manage potash residual materials in accordance with environmental laws and regulations and permit requirements.

 

As a potash producer, we currently are exempt from certain State of New Mexico mining laws related to reclamation obligations. If this exemption were to be eliminated or restricted in the future, we might be required to incur significant expenses related to reclamation at our Carlsbad, New Mexico facilities.

 

Government and public emphasis on environmental issues can be expected to result in future investments for environmental controls at ongoing operations, which will be charged against income from future operations. Present and future environmental laws and regulations applicable to our operations may require substantial capital expenditures and may have a material adverse effect on our business, financial condition and operating results. For more information, see “Business—Environmental, Health and Safety Matters” beginning on page 99.

 

Our indebtedness could adversely affect our financial condition and impair our ability to operate our business.

 

As of the completion of this offering, we expect to have $             million of outstanding indebtedness, including approximately $            million under our credit facility. Our credit facility will allow us to borrow up to an additional $            million. Our indebtedness could have important consequences, including the following:

 

   

it may limit our ability to borrow money or sell additional shares of common stock to fund our working capital, capital expenditures and debt service requirements;

 

   

it may limit our flexibility in planning for, or reacting to, changes in our business;

 

   

we may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;

 

   

it may make us more vulnerable to a downturn in our business or the economy;

 

   

it will require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness, thereby reducing the availability of our cash flow for other purposes; and

 

   

it may materially and adversely affect our business and financial condition if we are unable to service our indebtedness or obtain additional financing, as needed.

 

In addition, our credit facility will contain financial and other restrictive covenants that may limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 41.

 

Mining is a capital-intensive business, and the inability to fund necessary or desirable capital expenditures could have an adverse effect on our growth and profitability.

 

Mining is a capital-intensive business. We anticipate making significant capital expenditures over the next several years in connection with the development of new projects such as reopening the HB Mine, the various

 

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expansions at our existing operating facilities and sustaining existing operations. Costs associated with capital expenditures have escalated on an industry-wide basis over the last several years, largely as a result of major factors beyond our control such as increases in the price of natural gas, steel and other commodities. As costs associated with capital expenditures continue to increase, we could have difficulty funding or be unable to fund needed or planned capital expenditures, which would limit the expansion of our production or the inability to sustain our existing operations at optimal levels. Increased costs for capital expenditures could also have an adverse effect on the profitability of our existing operations and returns from our new projects.

 

Market upheavals due to global pandemics, military actions, terrorist attacks and any global and domestic economic repercussions from those events could reduce our sales and revenues.

 

Global pandemics, actual or threatened armed conflicts, future terrorist attacks or military or trade disruptions affecting the areas where we or our competitors do business may disrupt the global market for potash. As a result, our competitors may increase their sales efforts in our geographic markets and pricing of potash may suffer. If this occurs, we may lose sales to our competitors or be forced to lower our prices, which would reduce our revenues. In addition, due to concerns related to terrorism or the potential use of certain fertilizers as explosives, local, state and federal governments could implement new regulations impacting the production, transportation, sale or use of potash. Any such regulations could result in higher operating costs or limitations on the sale of our potash and could result in significant unanticipated costs, lower revenues and reduced profit margins.

 

We are a holding company with no operations of our own and depend on our subsidiaries for cash.

 

Because our operations are conducted through our subsidiaries, our ability to make payments on our indebtedness and pay dividends, if any, to our stockholders is dependent on the earnings and the distribution of funds from our subsidiaries. None of our subsidiaries is obligated to make funds available to us for payment on our indebtedness or to pay any dividends to holders of our common stock. Future financing arrangements of our subsidiaries, such as project financing, may significantly restrict or prohibit our subsidiaries from paying dividends or otherwise transferring assets to us.

 

If we are unsuccessful in negotiating new collective bargaining agreements, we may experience significant increases in the cost of labor or a disruption in our Wendover operations.

 

As of November 30, 2007, we had 710 employees. Approximately 5% of our workforce, consisting solely of employees at our Wendover Facility, is represented by labor unions. Our collective bargaining agreement with our employees in Wendover will expire on March 31, 2008. Although we believe that our relations with our employees are good, as a result of general economic, financial, competitive, legislative, political and other factors beyond our control, we may not be successful in negotiating new collective bargaining agreements. Such negotiations may result in significant increases in the cost of labor and a breakdown in such negotiations could disrupt our Wendover operations. If employees at any of our other facilities were to unionize in the future, these risks would increase.

 

Risks Related to This Offering

 

There is no existing market for our common stock and we do not know if one will develop. Even if a market does develop, the stock prices in the market may not exceed the offering price.

 

Prior to this initial public offering, there has not been a public market for our common stock. Furthermore, because current members of Intrepid Mining will beneficially own     % of our common stock immediately following this offering, only a limited number of our shares are likely to be actively traded and an active market in our shares may not develop. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on a national securities exchange or otherwise, or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any shares that you buy.

 

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The initial public offering price for the common stock was determined by negotiations among us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price you pay in this offering.

 

Our common stock price may be volatile and you may lose all or part of your investment.

 

Securities markets worldwide experience significant price and volume fluctuations in response to general economic and market conditions and their effect on various industries. This market volatility could cause the price of our common stock to decline significantly and without regard to our operating performance, and you may not be able to resell your shares at or above the offering price. Those fluctuations could be based on various factors in addition to those otherwise described in this prospectus, including:

 

   

our operating performance and the performance of our competitors;

 

   

the public’s reaction to our press releases, our other public announcements and our filings with the SEC;

 

   

changes in earnings estimates or recommendations by research analysts who follow Intrepid Potash or other companies in our industry;

 

   

variations in general economic, market and political conditions;

 

   

the number of shares to be publicly traded after this offering;

 

   

actions of our current stockholders, including sales of common stock by current members of Intrepid Mining or our directors and executive officers;

 

   

the arrival or departure of key personnel; and

 

   

other developments affecting us, our industry or our competitors.

 

In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations may be unrelated to the operating performance of particular companies. These broad market fluctuations may cause declines in the market price of our common stock. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company or its performance, and those fluctuations could materially reduce our common stock price.

 

If securities or industry analysts do not publish research or reports about us, our business or our market, or if they adversely change their recommendations regarding our stock, our stock price and trading volume could decline.

 

The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us, our business and our market. If one or more of the analysts who cover us change their recommendation regarding our stock adversely, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose viability in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

Future sales of our common stock, or the perception that such sales may occur, could depress our common stock price.

 

Sales of a substantial number of shares of our common stock, or the perception that such sales may occur, following this offering could depress the market price of our common stock. This would include sales by current members of Intrepid Mining. Under our restated certificate of incorporation, we will be authorized to issue up to             shares of common stock, of which             shares will be outstanding after completion of this offering and             shares will be issuable upon the exercise of outstanding stock options. Shares of our common stock held

 

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by our affiliates will continue to be subject to the volume and other restrictions of Rule 144 under the U.S. Securities Act of 1933, or the Securities Act. We and all of our executive officers and directors, as well as the current members of Intrepid Mining, will enter into lock-up agreements described under the caption “Underwriting”. Of the shares outstanding after completion of this offering,             shares will be freely tradable after the expiration date of the lock-up agreements, excluding any shares acquired by persons who may be deemed to be our affiliates. The             shares that have been reserved pursuant to our directed share program will be subject to the contractual lock-up agreements with the underwriters discussed under “Underwriting”. Each of the current members of Intrepid Mining and their affiliates will have the ability to cause us to register, after the expiration date of such member’s lock-up agreement, some or all of the shares held by such member and its affiliates, as described under “Certain Relationships and Related Party Transactions—Registration Rights Agreement”. Morgan Stanley & Co. Incorporated may, in its sole discretion and at any time without notice, release all or any portion of the shares subject to the lock-up. We cannot predict the size of future issuances of our common stock or the effect, if any, that future sales and issuances of shares of our common stock would have on the market price of our common stock.

 

In addition, immediately following this offering, we intend to file a registration statement registering under the Securities Act the shares of common stock reserved for issuance under our 2007 Stock Incentive Plan. See the information under the heading “Shares Eligible for Future Sale” for a more detailed description of the shares that will be available for future sales upon completion of this offering.

 

We may issue additional securities, including securities that are senior in right of dividends, liquidation and voting to the common stock, without your approval, which would dilute your existing ownership interests.

 

Our restated certificate of incorporation will allow us to issue up to             additional shares of common stock and up to             shares of preferred stock at any time without the approval of our stockholders. Our board of directors may approve the issuance of preferred stock with terms that are senior to our common stock in right of dividends, liquidation or voting. The issuance by us of additional common shares or other equity securities of equal or senior rank will have the following effects:

 

   

our stockholders’ proportionate ownership interest in us will decrease;

 

   

the relative voting strength of each previously outstanding common share may be diminished; and

 

   

the market price of the common stock may decline.

 

Our original stockholders will enter into a voting agreement and, in the aggregate, will have sufficient voting power to control decisions that require the approval of our stockholders.

 

Immediately following the completion of this offering, our original stockholders, in the aggregate, will own approximately     % of our common stock, or approximately     % if the underwriters’ over-allotment option is exercised in full. The original stockholders will enter into a voting agreement, wherein they will each agree to nominate one candidate for election to the board and to vote their shares in favor of the others’ candidates. As a result of the voting agreement and the voting power of the shares they hold, our original stockholders will be able to control the election of three of the members of our board without the vote of any other stockholder. Furthermore, our original stockholders, in the aggregate, will continue to have the ability to approve any transaction that requires the approval of stockholders, regardless of whether our other stockholders believe that any such transaction is in their own best interests.

 

Non-U.S. holders may be subject to U.S. taxation under the Foreign Investment in Real Property Tax Act.

 

We believe that we currently are a “United States real property holding corporation” for U.S. federal income tax purposes. As a result, under U.S. federal income tax laws enacted as part of the Foreign Investment in Real Property Tax Act, non-U.S. holders of our common stock may be subject to U.S. federal withholding tax or U.S.

 

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federal income tax, or both, and may be required to file U.S. tax returns with respect to gain on the disposition of, and certain distributions with respect to, our common stock. Non-U.S. holders are urged to consult their own tax advisors regarding the U.S. federal income tax consequences that may arise from our expected characterization as a “United States real property holding corporation”. See the discussion under the headings “Material U.S. Federal Income Tax Considerations—Non-U.S. Holders—Distributions” and “Material U.S. Federal Income Tax Considerations—Non-U.S. Holders—Dispositions”.

 

We will incur increased costs as a result of being a publicly-traded company.

 

We have no history operating as a publicly-traded company. As a publicly-traded company, we will incur significant legal, accounting and other expenses that we would not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as related rules implemented by the SEC and national securities exchanges, have required changes in corporate governance practices of publicly-traded companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, as a result of becoming a publicly-traded company, we will be required to have at least three independent directors, create additional board committees and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal control over financial reporting. In addition, we will incur additional costs associated with our publicly-traded company reporting requirements. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We estimate that we will incur $2.0 million of incremental costs per year associated with being a publicly-traded company; however, it is possible that our actual incremental costs of being a publicly-traded company will be higher than we currently estimate.

 

We will not be fully subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 until the end of 2009. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud and, as a result, our business could be harmed and current and potential stockholders could lose confidence in us, which could cause our stock price to fall.

 

We will be required to document our system and process evaluation and testing (and any necessary remediation) to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which we expect will first apply to us for our fiscal year ended December 31, 2009. As a result, we expect to incur substantial additional expenses and diversion of management’s time. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we may not be able to accurately report our financial results or prevent fraud and might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the national securities exchange on which our common stock is listed. Any such action could harm our business or investors’ confidence in us, and could cause our stock price to fall.

 

You will experience immediate and substantial dilution in net tangible book value per share of common stock.

 

The initial public offering price of the common stock will be substantially higher than the pro forma combined net tangible book value per share of our outstanding common stock. If you purchase shares of our common stock, you will incur immediate and substantial dilution in the amount of $            per share. See “Dilution”.

 

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We do not intend to pay dividends for the foreseeable future.

 

Other than the formation distribution, we have never declared or paid any dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. See “Dividend Policy” and “The Formation Transactions”.

 

Provisions in our charter documents and Delaware law may delay or prevent our acquisition by a third party.

 

We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various barriers to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and amended and restated bylaws will contain several provisions that may make it more difficult for a third party to acquire control of us without the approval of our board of directors. These provisions may make it more difficult or expensive for a third party to acquire a majority of our outstanding common stock. Among other things, these provisions:

 

   

authorize us to issue preferred stock that can be created and issued by the board of directors without prior stockholder approval, with rights senior to those of common stock;

 

   

do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;

 

   

prohibit stockholders from calling special meetings of stockholders;

 

   

prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

 

   

require vacancies and newly created directorships on the board of directors to be filled only by a majority of the directors then serving on the board;

 

   

establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting; and

 

   

classify our board of directors so that only some of our directors are elected each year.

 

These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders’ receiving a premium over the market price for their common stock. See “Description of Capital Stock—Anti-Takeover Effects of Certain Provisions of Delaware Law, the Certificate of Incorporation and the Bylaws”.

 

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FORWARD-LOOKING STATEMENTS

 

Some of the statements under “Summary”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business” and elsewhere in this prospectus constitute forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “potential”, “should”, “will” and “would” or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future operating results or of our financial position or state other forward-looking information. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to the following:

 

   

changes in the price of potash or langbeinite;

 

   

operational difficulties at our facilities;

 

   

changes in demand and/or supply for potash or langbeinite;

 

   

changes in our reserve estimates;

 

   

our ability to achieve the initiatives of our business strategy, including but not limited to the development of the HB Mine as a solution mine;

 

   

changes in the prices of our raw materials, including but not limited to the price of natural gas;

 

   

fluctuations in the costs of transporting our products to customers;

 

   

changes in labor costs and availability of labor with mining expertise;

 

   

the impact of federal, state or local government regulations, including but not limited to environmental and mining regulations;

 

   

competition in the fertilizer industry;

 

   

declines in U.S. agricultural production;

 

   

declines in oil and gas drilling;

 

   

changes in economic conditions;

 

   

adverse weather events at our facilities;

 

   

our ability to comply with covenants inherent in our current and future debt obligations to avoid defaulting under those agreements; and

 

   

other risks described under “Risk Factors”.

 

This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative but not exhaustive. Accordingly, all forward-looking statements should be evaluated with an understanding of their inherent uncertainty. Before you invest in our common stock, you should be aware that the occurrence of the events described in “Risk Factors” and elsewhere in this prospectus could have a material adverse effect on our business, operating results and financial position.

 

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USE OF PROCEEDS

 

We estimate that we will receive net proceeds from this offering of approximately $             million, after deducting estimated underwriting discounts and commissions and other expenses of the offering payable by us. For purposes of estimating our net proceeds, we have assumed that the initial public offering price of the shares of common stock will be $            , which is the midpoint of the price range set forth on the cover page of this prospectus, and no exercise of the underwriters’ option to purchase additional shares of common stock to cover over-allotments. A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) net proceeds to us from this offering by approximately $             million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and would increase (decrease) the amount of net proceeds payable to Intrepid Mining pursuant to the exchange agreement. Assuming that the underwriters exercise their over-allotment option in full, a $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) net proceeds to us from the exercise of the over-allotment option by approximately $         million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and would increase (decrease) the cash payable pursuant to the formation distribution.

 

We expect to apply the net proceeds from this offering as follows:

 

   

approximately $            million (approximately     % of the net proceeds from this offering) will be paid to Intrepid Mining (together with              shares of our common stock) in exchange for all of Intrepid Mining’s assets other than cash; and

 

   

the remainder of the net proceeds will be used by us for repayment of debt under our existing senior credit facility.

 

The net proceeds we receive from the exercise of the over-allotment option will be used to pay the formation distribution. Any amount of the formation distribution that is not paid in cash will be paid in shares of our common stock.

 

In addition, we will assume $             million of Intrepid Mining’s liability under its existing senior credit facility and all other existing liabilities of Intrepid Mining. As of September 30, 2007, the total debt outstanding under the existing senior credit facility was $90.8 million, which bore interest at a weighted average interest rate of 6.74%. We borrowed an additional $15.0 million under the existing senior credit facility in October 2007. The $125.0 million revolving portion of the existing senior credit facility matures on March 9, 2012, and the $50.0 million term loan portion matures on March 9, 2014, with required payments of $1.25 million due quarterly until maturity. The existing senior credit facility was most recently refinanced on March 9, 2007 to permit the redemption by Intrepid Mining of the membership interests of Long Canyon, LLC and to provide available credit for our capital spending program.

 

After the completion of this offering, Intrepid Mining will satisfy the $             million liability under its existing senior credit facility that is not assumed by Intrepid Potash pursuant to the terms of the exchange agreement and any remaining liabilities, liquidate and distribute its remaining assets, including the cash and common stock received pursuant to the exchange agreement and the right to receive the formation distribution, to the current members of Intrepid Mining.

 

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DIVIDEND POLICY

 

As described under “The Formation Transactions”, we will declare a dividend to Intrepid Mining before the closing of this offering. This dividend, which we refer to in this prospectus as the “formation distribution”, will be paid in             shares of our common stock; provided, however, that for each share of our common stock purchased by the underwriters pursuant to their over-allotment option, the number of shares payable pursuant to the formation distribution will be reduced, one-for-one, and in lieu of such shares, we will pay cash in an amount equal to the net proceeds, before offering expenses but after underwriting discounts and commissions, we receive from the exercise of the underwriters’ over-allotment option. The formation distribution will be payable to Intrepid Mining, the holder of record of the common stock prior to this offering, upon the earlier of the expiration of the underwriters’ over-allotment option period or the exercise of the over-allotment option.

 

With the exception of the dividend described in the previous paragraph, we have never declared or paid any dividends on our common stock. We anticipate that we will retain any future earnings for the operation and expansion of our business. Accordingly, we do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future.

 

Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

 

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CAPITALIZATION

 

The following table sets forth as of September 30, 2007:

 

   

our pro forma combined cash and cash equivalents and capitalization; and

 

   

our pro forma combined cash and cash equivalents and capitalization on an as adjusted basis to reflect (a) the formation transactions and (b) the sale of             shares of common stock in this offering by us at an assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of our net proceeds from the offering in the manner described under “Use of Proceeds” on page 28.

 

You should read this table together with the sections of this prospectus entitled “Use of Proceeds” beginning on page 28 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 41, as well as our financial statements and related notes and the other financial information appearing elsewhere in this prospectus. The data assume that there has been no exercise, in whole or in part, of the underwriters’ option to purchase additional shares of our common stock in this offering and that the dividend payable to Intrepid Mining is paid in              shares of our common stock.

 

     September 30, 2007
    

Pro Forma

Combined

   Pro Forma
Combined
As Adjusted
     (in thousands)

Cash and cash equivalents

   $                 $             

Total debt, including current portion

     

Members’ equity

     

Stockholders’ equity (deficit):

     

Common stock, $0.001 par value; 1,000 shares authorized, 1,000 shares issued and outstanding actual,             shares issued and outstanding as adjusted

     

Additional paid-in capital

     

Accumulated deficit

     

Accumulated other comprehensive loss

     
             

Total stockholders’ equity (deficit)

     
             

Total capitalization

   $                 $             
             

 

A $1.00 increase or decrease in the assumed initial public offering price per share would increase or decrease each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $            million (or $            million assuming full exercise of the underwriters’ option to purchase additional shares of common stock), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

The outstanding share information as of September 30, 2007 shown in the table above excludes             shares of common stock reserved for issuance under our 2007 Stock Incentive Plan. As of September 30, 2007, no options to purchase shares of common stock were outstanding.

 

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DILUTION

 

If you purchase our common stock in the offering, you will suffer an immediate and substantial dilution in net tangible book value per share. Dilution is the amount by which the initial public offering price paid by purchasers of our common stock exceeds the net tangible book value per share of our common stock after the offering. Net tangible book value represents the amount of our total tangible assets reduced by our total liabilities. Tangible assets equal our total assets less goodwill and intangible assets. Net tangible book value per share represents our net tangible book value divided by the number of common shares outstanding. The number of shares of our common stock outstanding after this offering will be              (including              shares that will be sold to the underwriters pursuant to the exercise of their over-allotment option or, to the extent the over-allotment option is not exercised, distributed to the current members of Intrepid Mining pursuant to the formation distribution). As of September 30, 2007, our pro forma net tangible book value was $             million and our pro forma net tangible book value per share was $            .

 

After giving effect to the sale of              shares of common stock in the offering (including              shares that will be sold to the underwriters pursuant to the exercise of their over-allotment option or, to the extent the over-allotment option is not exercised, distributed to the current members of Intrepid Mining pursuant to the formation distribution) at an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, the formation transactions and the application of the estimated net proceeds from the offering, our pro forma adjusted net tangible book value as of September 30, 2007 would have been $             million, or $             per share.(1) This represents an immediate increase in net tangible book value of $             per share to existing stockholders and an immediate dilution of $             per share to new investors purchasing shares in the offering.(2) The following table illustrates this per share dilution:

 

Assumed initial public offering price per share

      $             
         

Pro forma net tangible book value per share as of September 30, 2007

   $                

Increase in net tangible book value per share attributable to new investors

     

Decrease in net tangible book value per share distributed to existing stockholders

     
         

Pro forma adjusted net tangible book value per share after the offering and the formation transactions

     
         

Pro forma dilution per share to new investors

      $             
         

 

A $1.00 increase or decrease in the assumed initial public offering price per share would increase or decrease our net tangible book value per share after the offering by approximately $            , and dilution per share to new investors by approximately $            , after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Assuming that the underwriters exercise their over-allotment option in full, a $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) net proceeds to us from the exercise of the over-allotment option by approximately $             million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and would increase (decrease) the cash payable pursuant to the formation distribution. Any amount of the formation distribution that is not paid in cash will be paid in shares of our common stock.

 


  (1)   A $1.00 increase in the initial public offering price per share would result in a decrease in our net tangible book value as of September 30, 2007, or a decrease of $             per share of common stock. A 10% increase in the number of shares of common stock, assuming an initial public offering price of $             (the midpoint of the range set forth on the cover page of this prospectus), would result in a decrease in our net tangible book value as of September 30, 2007, or a decrease of $             per share of common stock.
  (2)   A $1.00 increase in the initial public offering price per share would result in additional dilution in net tangible book value of $             per share. A 10% increase in the number of shares of common stock sold, assuming an initial public offering price of $             (the midpoint of the range set forth on the cover page of this prospectus), would reduce dilution in net tangible book value by $             per share.

 

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The foregoing discussion and tables assume no exercise of any stock options that will be outstanding immediately following this offering. As of September 30, 2007, no options to purchase shares of common stock were outstanding. As of the date of completion of this offering, we will have outstanding options to purchase              shares of our common stock. To the extent these options are exercised, there may be further dilution to new investors.

 

The following table illustrates, on the as adjusted basis described above as of September 30, 2007, the total number of shares held, total consideration paid and average price per share paid by existing stockholders and by new investors for the common stock, assuming the sale of shares of common stock in the offering at an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus:

 

     Assuming No Exercise of Underwriters’ Option
   Shares Purchased     Total Consideration     Average Price
Per Share
   Number    Percent     Amount    Percent    
   (dollars in thousands)

Existing stockholders

              %       $                        %       $            

New investors

            
                              

Total

               %   $                          %   $             
                              

 

     Assuming Full Exercise of Underwriters’ Option
   Shares Purchased     Total Consideration     Average Price
Per Share
   Number    Percent     Amount    Percent    
   (dollars in thousands)

Existing stockholders

              %       $                        %       $            

New investors

            
                              

Total

               %   $                          %   $             
                              

 

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SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL AND OPERATING DATA

 

The following tables show selected historical financial and operating data of Intrepid Mining and pro forma combined financial and operating data of Intrepid Mining and Intrepid Potash for the periods and as of the dates indicated. The historical financial statements included in this prospectus reflect the results of operations of Intrepid Mining. The selected historical financial data for the nine months ended September 30, 2007 and the nine months ended September 30, 2006, are derived from the unaudited financial statements of Intrepid Mining. The selected historical financial data as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004 have been derived from Intrepid Mining’s audited consolidated financial statements and related notes included elsewhere in this prospectus. The following selected historical financial data as of December 31, 2004, 2003 and 2002 and for the years ended December 31, 2003 and 2002 have been derived from Intrepid Mining’s audited consolidated financial statements, which are not included in this prospectus.

 

The selected pro forma combined financial and operating data for the nine months ended September 30, 2007 and for the year ended December 31, 2006, are derived from the unaudited pro forma combined financial statements of Intrepid Mining and Intrepid Potash included elsewhere in this prospectus. The pro forma adjustments have been prepared as if certain transactions to be effected upon completion of this offering had taken place on September 30, 2007, in the case of the pro forma combined balance sheet, or as of January 1, 2006, in the case of the pro forma combined statements of operations for the nine months ended September 30, 2007 and for the year ended December 31, 2006. The transactions reflected in the pro forma adjustments assume that Intrepid Potash will complete its initial public offering of common stock, acquire all of the assets of Intrepid Mining other than cash, and assume $     million of Intrepid Mining’s liability under its existing senior credit facility and all other existing liabilities of Intrepid Mining. The pro forma combined financial information should not be relied upon as being indicative of Intrepid Potash or Intrepid Mining’s results of operations or financial condition had the transactions been completed on January 1, 2006, with respect to the pro forma combined statements of operations, or as of September 30, 2007, with respect to the pro forma combined balance sheet.

 

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You should read the selected historical consolidated financial and operating data and the pro forma combined financial information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the “Unaudited Pro Forma Combined Financial Information” and the historical financial statements and related notes of Intrepid Mining and Intrepid Potash appearing elsewhere in this prospectus.

 

   

Pro Forma

September 30,
2007

  Nine Months
Ended
September 30,
   

Pro Forma

December 31,
2006

  Year Ended December 31
    2007   2006       2006     2005     2004     2003     2002
        (unaudited)                                  
    (dollars in thousands, except per share data)

Statement of Operations Data(1)(2):

                 

Net sales:

                 

U.S.

  $                $ 130,897   $ 95,107     $                $ 131,920     $ 135,682     $ 90,765     $ 11,598     $ 10,892

International

      9,228     5,624         7,685       5,267       10,268            
                                                               

Total

      140,125     100,731         139,605       140,949       101,033       11,598       10,892

Cost of goods sold(3)

      99,263     78,804         113,949       99,051       68,913       6,694       6,019
                                                               

Gross margin

      40,862     21,927         25,656       41,898       32,120       4,904       4,873

Selling and administrative

      10,579     6,742         10,053       7,529       7,065       1,958       1,964

Other operating—net(4)

      434     (487 )       (4,386 )     329       327       279       300
                                                               

Operating income

      29,849     15,672         19,989       34,040       24,728       2,667       2,609

Interest expense

      6,587     2,083         2,907       1,473       1,802       612       302

Other non-operating(5)

      128     193         (7,016 )     (47 )     (195 )     (64 )     209
                                                               

Income from continuing operations

    $ 23,134   $ 13,396       $ 24,098     $ 32,614     $ 23,121     $ 2,119     $ 2,098
                                                       

Pro forma income tax(6)

                 
                         

Pro forma income from continuing operations

  $         $            
                         

Pro Forma Share and Per Share Data (unaudited)(7):

                 

Pro forma basic and diluted net income (loss) per share

  $         $            
                         

Pro forma weighted average shares outstanding—basic and diluted

                 
                         

 

(footnotes on following page)

 

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Pro Forma

September 30,
2007

  Nine Months
Ended
September 30,
   

Pro Forma

December 31,
2006

  Year Ended December 31,  
    Actual       Actual  
    2007     2006       2006     2005     2004     2003     2002  
        (unaudited)                                    

Selected Balance Sheet Data(1):

                 

Cash and cash equivalents(8)

  $     $ 2,490     $     $     $ 286     $ 157     $ 2,169     $ 452     $ 310  

Total current assets

      41,622       43,631         50,853       29,124       33,726       6,795       6,316  

Total assets

      137,868       124,648         129,314       106,506       90,310       24,083       21,314  

Total current liabilities

      24,135       16,533         24,112       19,061       24,578       1,754       2,028  

Total debt(8)(9)

      90,822       46,785         132,189       37,156       36,387       12,379       9,947  

Stockholders’ equity (deficit)(9)(10)

      18,926       50,761         (31,458 )     42,485       23,192       7,369       5,569  
   

Pro Forma

September 30,
2007

  Nine Months
Ended
September 30,
   

Pro Forma

December 31,
2006

  Year Ended December 31,  
    2007     2006       2006     2005     2004     2003     2002  
        (unaudited)                                    
    (in thousands)  

Other Financial Data(1):

                 

EBITDA(10)

  $                $ 36,152     $ 21,276     $                $ 35,033     $ 39,580     $ 28,445     $ 3,730     $ 3,342  

Depreciation, depletion, amortization and accretion

      6,431       5,797         8,028       5,493       3,522       999       943  

Capital expenditures

      (21,317 )     (5,145 )       (13,125 )     (21,732 )     (8,936 )     (3,020 )     (4,635 )

Acquisition costs

                                (38,473 )            

  (1)   In early 2004, we acquired the potash assets of Mississippi Potash, Inc., Reilly Chemical, Inc. and Eddy Potash, Inc. As a result, the magnitude of the operations, assets and liabilities, and cash-flows all increased significantly relative to those in 2003.
  (2)   In 2006, the results of operations were depressed principally by the ramp-up of a new plant, a partially insured business interruption at the West Mine, and insured property damage arising from severe wind damage to the warehouse at the East Mine.
  (3)   When by-product inventories are sold, a by-product credit to the cost of goods sold is recognized.
  (4)   2006 “Other operating—net” includes $4.9 million in business interruption insurance settlements. See note (2).
  (5)   2006 “Other non-operating” includes $6.7 million in property damage settlements. See note (2).
  (6)   A pro forma provision for income taxes at statutory rates has been made in the financial statements on the assumption that Intrepid Mining was a taxable entity for the respective periods. As a limited liability company, Intrepid Mining’s taxable income was included in its members’ income tax returns whereas Intrepid Potash will be subject to income tax as a corporation.
  (7)   Pro forma net income (loss) per share is based on the weighted average number of shares of common stock outstanding after giving effect to the offering, assuming that the offering had occurred as of the beginning of the earliest period presented.
  (8)   In most periods, we have reduced our revolving debt rather than maintaining large cash balances.
  (9)   On December 28, 2006, a member’s interest was redeemed at cost of $100 million, which included a $95 million note paid in March 2007. The redemption was recognized as an equity distribution resulting in a members’ deficit as of December 31, 2006.
  (10)   We define EBITDA as net income before interest, income taxes, depreciation, depletion, amortization and accretion. EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements to assess:
   

the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;

   

our operating performance and return on capital as compared to other companies in the fertilizer business, without regard to financing or capital structure; and

   

the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

 

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The economic substance behind management’s use of EBITDA is to measure the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and pay dividends, if any, to our investors.

 

The GAAP measure most directly comparable to EBITDA is net income. Our non-GAAP financial measure of EBITDA should not be considered as an alternative to GAAP net income. EBITDA is not a presentation made in accordance with GAAP and has important limitations as an analytical tool. You should not consider EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because EBITDA excludes some, but not all, items that affect net income and is defined differently by different companies in our industry, our definition of EBITDA may not be comparable to similarly titled measures of other companies.

 

Management compensates for the limitations of EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this information into management’s decision-making processes.

 

EBITDA is calculated and reconciled to income from continuing operations in the table below:

 

   

Pro Forma

September 30,
2007

  Nine Months
Ended
September 30,
 

Pro Forma

December 31,
2006

  Year Ended December 31,
    2007   2006     2006   2005   2004   2003   2002
        (unaudited)                        
    (in thousands)

Calculation of EBITDA:

                 

Income from continuing operations

  $     $ 23,134   $ 13,396   $     $ 24,098   $ 32,614   $ 23,121   $ 2,119   $ 2,098

Interest—net

      6,587     2,083       2,907     1,473     1,802     612     302

Depreciation, depletion, amortization and accretion

      6,431     5,797       8,028     5,493     3,522     999     943
                                                     

EBITDA

  $                $ 36,152   $ 21,276   $                $ 35,033   $ 39,580   $ 28,445   $ 3,730   $ 3,342
                                                     

 

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Table of Contents

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

 

Intrepid Potash was incorporated in the state of Delaware on November 19, 2007 for the purpose of acquiring all of Intrepid Mining’s assets other than cash and assuming $         million of Intrepid Mining’s liability under its existing senior credit facility and all other existing liabilities of Intrepid Mining. Intrepid Potash intends to continue the business of Intrepid Mining in corporate form. The acquisition of the net assets from Intrepid Mining will be accounted for at historical cost because the members of Intrepid Mining will receive common stock of Intrepid Potash in exchange for a controlling interest in Intrepid Potash.

 

The following unaudited pro forma combined statements of operations for the nine months ended September 30, 2007 and year ended December 31, 2006, and the unaudited pro forma combined balance sheet at September 30, 2007, present the combined results of operations and financial position of Intrepid Potash assuming the material offering and related transactions described below had become effective as of January 1, 2006 with respect to the pro forma combined statements of operations, and as of September 30, 2007 with respect to the pro forma combined balance sheet. The pro forma adjustments are based on available information and upon assumptions that management believes are reasonable to reflect, on a pro forma basis, the impact of the historical adjustments listed below and the transaction adjustments listed below on the historical financial information of Intrepid Potash and Intrepid Mining. The adjustments as set forth below are described in detail in the notes to the unaudited pro forma combined statements of operations and the unaudited pro forma combined balance sheet.

 

Pro forma transaction adjustments include those to reflect:

 

   

the proceeds of $         million raised from the initial public offering of the common stock of Intrepid Potash;

 

   

the acquisition of all of the assets of Intrepid Mining other than cash in exchange for $         million,          shares of common stock at the assumed initial public offering price of $         per share (the midpoint of the price range set forth on the cover page of this prospectus) and the assumption of $         million of Intrepid Mining’s liability under its existing senior credit facility and all other existing liabilities of Intrepid Mining. The assets and liabilities have been recorded at the historical basis of Intrepid Mining;

 

   

the subsequent repayment of approximately $         million of debt with the proceeds and the reduction in interest expense as a result of the debt reduction;

 

   

the determination of the tax effects of all changes in the tax basis of the assets and liabilities acquired; and

 

   

the calculation of income tax provisions as if the entity had been subject to federal and state income taxes for the respective periods.

 

You should read this unaudited pro forma combined financial information together with the other information contained in this prospectus, including “Business”, “The Formation Transactions”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the audited historical financial statements and the notes thereto of Intrepid Potash and Intrepid Mining included elsewhere in this prospectus, and the unaudited historical consolidated financial statements and the notes thereto of Intrepid Mining as of and for the nine months ended September 30, 2007 included elsewhere in this prospectus.

 

The unaudited pro forma combined financial information is for informational purposes only and does not purport to reflect the results of operations or financial condition of Intrepid Potash and Intrepid Mining that would have occurred had they been combined during the periods presented. The pro forma combined financial information should not be relied upon as being indicative of Intrepid Potash or Intrepid Mining’s results of operations or financial condition had the transactions been completed on January 1, 2006, with respect to the pro forma combined statements of operations, and as of September 30, 2007, with respect to the pro forma combined balance sheet. The pro forma combined financial information also does not project the results of operations or financial condition for any future period or date.

 

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     As of September 30, 2007
     Intrepid
Potash, Inc.
   Intrepid
Mining LLC
   Pro Forma
Adjustments
    Pro Forma
Combined
     (unaudited)
     (in thousands)

Balance Sheet Data:

             

Current Assets

             

Cash and cash equivalents

   $    $ 2,490    $
 
   (1 )   $  
            (2 )  
            (3 )  

Accounts receivable:

             

Trade

          19,566        

Insurance and other

          1,392        

Related parties

          230        

Inventory, net

          16,431        

Prepaid expenses and other current assets

          1,512        
                             

Total current assets

          41,621        
                             

Property, plant and equipment, net

          60,102        

Mineral properties and development costs, net

          23,350        

Other assets

          12,795        

Deferred tax assets, net

                (4 )  
                             

Total assets

   $    $ 137,868    $        $  
                             

Current Liabilities

             

Accounts payable

   $    $ 4,831    $        $  

Accrued liabilities

          13,117        

Current installments of long-term debt

          5,022       (3 )  

Other current liabilities

          1,165        
                             

Total current liabilities

          24,135        
                             

Long-term debt, net of current installments

          85,800       (3 )  

Accrued pension liability

          944        

Asset retirement obligation

          7,634        

Other non-current liabilities

          429        
                             

Total non-current liabilities

          94,807        
                             

Commitments and Contingencies

             

Members’/Stockholders’ Equity (Deficit)

          18,926       (1 )  
            (2 )  
            (3 )  
            (4 )  
                             

Total Liabilities and Members’/Stockholders’ Equity

   $    $ 137,868    $        $             
                             

  (1)   To reflect the net proceeds raised from the completion of this offering at an assumed price of $         per share (the midpoint of the price range set forth on the cover page of this prospectus), net of estimated offering costs of $         million.
  (2)   To reflect the payment of $         million, the issuance of          shares of common stock to the members of Intrepid Mining, (including          shares distributed pursuant to the formation distribution) and the assumption of $         million of Intrepid Mining’s liability under its existing senior credit facility and all other existing liabilities of Intrepid Mining pursuant to the exchange agreement in exchange for all of the assets of Intrepid Mining other than cash.
  (3)   To reflect the payment of $         million under Intrepid Mining’s existing senior credit facility with proceeds of the offering.
  (4)   To establish the net deferred tax asset for the book and tax basis difference generated as a result of the acquisition by Intrepid Potash of substantially all of the assets and liabilities of Intrepid Mining.

 

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     Nine Months Ended September 30, 2007
      Intrepid
Potash,
Inc.
   Intrepid
Mining
LLC
   

Pro

Forma
Adjustments

    Pro
Forma
Combined
     (unaudited)
     (in thousands, except per share data)

Statement of Operations Data:

            

Sales

   $    $ 158,525     $        $              

Less: freight and distribution

          18,400         
                              

Net sales

          140,125         

Cost of goods sold

          99,263         
                              

Gross Margin

          40,862         
                              

Selling and administrative

          10,579         

Accretion of asset retirement obligation

          434         
                              

Operating Income

          29,849         
                              

Other Income (Expense)

            

Interest expense

          (6,587 )      (5 )  

Foreign currency translation

          12         

Other income (expense)

          (140 )       
                              

Income from Continuing Operations Before Taxes

          23,134         
                              

Income Taxes

                 (6 )  
                              

Income from Continuing Operations

   $    $ 23,134     $        $  
                              

Earnings Per Share:

            

Basic

             $  

Diluted

            

Weighted Average Shares Outstanding:

            

Basic

            

Diluted

            

 

(footnotes on following page)

 

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Table of Contents
     Year Ended December 31, 2006
     Intrepid
Potash,
Inc.
   Intrepid
Mining
LLC
    Pro Forma
Adjustments
    Pro
Forma
Combined
                (unaudited)
     (in thousands, except per share data)

Statement of Operations Data:

         

Sales

   $    $ 154,291     $       $              

Less: freight and distribution

          14,686      
                             

Net sales

          139,605      

Cost of goods sold

          113,949      
                             

Gross Margin

          25,656      
                             

Selling and administrative

          10,053      

Accretion of asset retirement obligation

          541      

Business interruption insurance settlements

          (4,927 )    
                             

Operating Income

          19,989      
                             

Other Income (Expense)

         

Interest expense

          (2,907 )                  (5)  

Insurance proceeds in excess of property losses(6)

          6,665      

Other income

          351      
                             

Income from Continuing Operations Before Taxes

          24,098      
                             

Income Taxes

                             (7)  
                             

Income from Continuing Operations

   $    $ 24,098     $       $  
                             

Earnings Per Share:

         

Basic

          $  

Diluted

         

Weighted Average Shares Outstanding:

         

Basic

         

Diluted

         

  (5)   Represents the interest expense reduction related to the payment of $             million of indebtedness under the existing senior credit facility. The interest rate applicable to the revolving and term loan is assumed to be the average rate for the periods presented. For further discussion of the existing senior credit facility, please see notes to historical financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
  (6)   Intrepid Mining includes a $6.7 million gain on insurance settlements related to the destruction of a warehouse, which did not result from operating activities.
  (7)   Represents the adjustment necessary for the respective period to record estimated federal and state income taxes on the income of Intrepid Mining as if Intrepid Mining had been a taxable entity during the period. The assumed tax rate is     %, which approximates the statutory rate.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis together with our consolidated financial statements and related notes and the other financial information that appear elsewhere in this prospectus. This discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions, including those discussed under “Risk Factors” beginning on page 13. Our actual results may differ materially from those expressed in or implied by these forward-looking statements. See “Forward-Looking Statements” for information about such statements beginning on page 27.

 

Overview

 

Our Company

 

We are the largest producer of muriate of potash (MOP, or potassium chloride) in the U.S. and are dedicated to the production and marketing of potash and langbeinite, another mineral containing potassium. Potassium is one of the three nutrients essential to plant formation and growth. Since 2004, we have supplied, on average, 1.5% of world potash consumption and 8.5% of U.S. consumption annually, and we have supplied a considerably higher proportion of the potash consumed in the southwestern and western U.S., our core markets. We are one of two exporting producers of langbeinite (sulfate of potash magnesia), a low-chloride fertilizer that is better suited than MOP for chloride-sensitive crops. We own five active potash production facilities—three in New Mexico and two in Utah—and we have the nameplate capacity to produce 1,100,000 tons of potash and 250,000 tons of langbeinite annually. We own two development assets in New Mexico—the HB Mine, which is an idled potash mine that we are in the process of reopening as a solution mine, and the North Mine. We expect that the expansion opportunities at our operating facilities and the HB Mine will increase production by an aggregate of over 370,000 tons of potash and langbeinite annually over the next five to seven years. We also produce salt, magnesium chloride and metal recovery salts from our potash mining processes.

 

Our History

 

Our management team formed Intrepid Oil & Gas, LLC on September 1, 1996, for the purpose of acquiring oil and gas leases near Moab, Utah. While mapping the area for potential oil and gas resources, we learned about the substantial local potash deposits and discovered that the only operating potash mine in the area, which was then in decline, was scheduled to close. We determined that the decline in production in Moab could be reversed by applying horizontal drilling technology, commonly used in the oil and gas industry, to create potash solution mining caverns. This represented a new approach to potash mining. Our management team formed Intrepid Mining on January 26, 2000, for the purpose of acquiring Moab Salt, Inc. from PCS for cash consideration of approximately $3 million, plus the assumption of certain liabilities and closing costs for total consideration of approximately $14.8 million. We renamed the company Intrepid Potash–Moab, LLC.

 

We observed that potash from Moab shared markets with potash produced in Carlsbad, New Mexico and in Wendover, Utah. Accordingly, we formulated a strategy to acquire assets in those areas in order to consolidate marketing efforts and effect operating synergies.

 

   

On February 29, 2004, Intrepid Mining acquired substantially all of the assets of Mississippi Potash, Inc. and Eddy Potash, Inc. from Mississippi Chemical Company for $36.6 million. These assets included the operating East and West potash mines, the North Facility compaction plant and the idled HB and North Mines, all located near Carlsbad, New Mexico. Mississippi Chemical, which filed for bankruptcy in May 2003, had long since been unable to re-invest in or properly maintain the properties due to cash flow constraints stemming from its then-failing nitrogen fertilizer business.

 

   

Effective April 1, 2004, Intrepid Mining purchased the potash assets of Reilly Chemical, Inc. through its wholly-owned subsidiary, Intrepid Wendover, for $10.7 million. The acquired assets included a natural brine and potash production facility on the Bonneville Salt Flats of Utah. Reilly Chemical

 

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operated a diversified business providing specialty chemicals for the agriculture, nutrition, pharmaceutical and medical, personal care, plastics, coatings and industrial markets. We saw the opportunity to use better technology, not employed by Reilly Chemical, to improve production at Wendover.

 

During 2006, Intrepid Mining sold substantially all of its oil and gas assets. The remaining equity interests in its wholly-owned oil and gas subsidiary, Intrepid Oil & Gas, LLC, were distributed to the members of Intrepid Mining in 2007.

 

Intrepid Potash was formed as a Delaware corporation on November 19, 2007 and, in connection with the completion of this offering, will acquire all of the assets of Intrepid Mining other than cash and will assume $             million of Intrepid Mining’s existing liability under its existing senior credit facility and all other existing liabilities of Intrepid Mining.

 

Our Products and Markets

 

Our two primary products are potash (MOP) and langbeinite (sulfate of potash magnesia). For the nine months ended September 30, 2007, we derived 90% of our net sales and 92% of our gross margin from potash.

 

Our potash is marketed for sale into three primary markets: the agricultural market as a fertilizer, the industrial market as a component in drilling fluids for oil and gas exploration and the animal feed market as a nutrient. The agricultural market represented approximately 64% of our sales in the nine months ended September 30, 2007, with sales to industrial and feed markets accounting for 30% and 6% of our sales, respectively. Our primary regional markets include agricultural areas west of the Mississippi River, oil and gas exploration areas in the Rocky Mountains and the Permian Basin and feedlots in Texas and other western states. For the nine months ended September 30, 2007, 97% of our potash sales volume was derived from sales within the U.S.

 

We are one of only two companies that have economic reserves of langbeinite and produce langbeinite for export, the other being Mosaic. We began producing langbeinite in late 2005 and are working to expand our production and increase demand. Although Mosaic has sold langbeinite from the Carlsbad, New Mexico region since the 1950s, we believe that our entry into the market as a second producer has increased growers’ willingness to use langbeinite. Langbeinite is marketed into two primary markets: the agricultural market as a fertilizer and the animal feed market as a nutrient. We market langbeinite throughout the world, including through an exclusive marketing agreement with PCS for sales outside North America. For the nine months ended September 30, 2007, 60% of our langbeinite volume was sold in the U.S. and the remaining 40% was exported.

 

Key Industry Factors

 

We operate in a highly competitive, global industry. Potash and langbeinite are globally-traded commodities and, as a result, we compete on the basis of delivered price, timely service and product quality. Moreover, our operating results are influenced by a broad range of factors, including those outlined below.

 

Fertilizer Demand

 

Global fertilizer demand has been driven by population growth, changes in dietary habits, planted acreage, crop yields, grain inventories, application rates, global economic conditions, weather patterns and farm sector income, among other things. We expect these key variables to continue to have a significant impact on fertilizer demand for the foreseeable future. Sustained income growth and agricultural policies in the developing world also affect demand for fertilizer. As incomes grow, diets become more diverse, nutritious and protein-rich, primarily through increased meat consumption. Producing meat from livestock and poultry requires large amounts of grain for feed. Fertilizer demand is also affected by other geopolitical factors like temporary disruptions in fertilizer trade related to government intervention and changes in the buying patterns of key consuming countries.

 

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Table of Contents

Potash Supply

 

Economically recoverable potash deposits occur rarely. Virtually all potash is extracted from twenty commercial deposits located in twelve countries. According to the IFA, in the first half of 2007, six of these countries (Canada, Russia, Belarus, Germany, Israel and Jordan) accounted for approximately 87% of the world’s aggregate potash production. Companies in Canada and the former Soviet Union lead the global potash market due to the size and grade of their reserves, among other factors. The addition of new potash production is difficult because currently unexploited deposits are rare, deep in the earth and are often located in remote areas which would require significant capital investment to exploit. The most recently constructed operating mine in the world was opened in 1987. New potash supply projects are being developed primarily at areas of existing production, but are expected to take several years to become fully operational. Additional challenges faced by potash producers include mine flooding risks, aging facilities, depleting ore reserves and increasing transportation costs.

 

Energy Demand

 

Energy prices and consumption affect the potash industry in several ways. Growing demands upon existing energy supplies have supported the development of biofuels, which currently rely upon agricultural products as feedstocks. As demand and prices for these feedstocks increase, the use of fertilizer becomes more economically attractive. In addition, energy prices affect the global levels of oil and gas drilling, which often consumes potash as a drilling fluid additive. Higher fuel prices increase the cost of transporting potash from producing to consuming regions.

 

Foreign Currency Fluctuations

 

Currency fluctuations can play a role in potash pricing. As the currencies of exporting countries strengthen, producers in those countries realize less sales revenue per ton when prices denominated in the recipient country’s currency are translated back into the exporter’s stronger currency. If this occurs during a period of strong potash demand, exporting producers tend to raise their potash prices in the recipient country’s currency to maintain margins in their own currency. For example, as the Canadian dollar and Russian ruble have recently strengthened in a period of high demand, U.S. dollar prices from those exporting producers have increased. Conversely, if the currencies of exporting countries weaken, producers from those countries realize higher sales revenue per ton on exports ton when prices denominated in the recipient country’s currency are translated back into the exporter’s weaker currency. If this occurs in a period of slow demand, exporters could choose to lower prices to increase export volumes.

 

Governmental Policies

 

Increased recognition of the benefits of balanced fertilizer use by growers and governmental support thereof directly affects the applications rates and usage of fertilizer in the developing world. The potash market is a global market experiencing demand growth in developing countries such as China, India and Brazil. The governmental policies of these and other countries have recently been supportive of agricultural policies that promote balanced fertilization, which has led to increases in potash demand.

 

Factors Affecting Our Results

 

Sales

 

Our gross sales are derived from the sales of potash and langbeinite and are determined by the quantities of fertilizers we sell and the selling price we realize. We quote prices to customers both on a delivered basis and on the basis of pick-up at our plants and warehouses. Transportation and distribution costs are incurred only on a portion of the sales as customers often arrange and pay for delivery to their sites. Our gross sales include freight and distribution costs, but we do not believe gross sales provides an accurate measurement of our performance in

 

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the market due to the inclusion of freight and distribution costs. We view net sales, which is gross sales less freight and distribution costs, as the key performance indicator. We primarily utilize net sales per ton in the analysis of our sales trends in order to remove the effect of transportation and delivery costs on pricing.

 

The volumes we sell are determined by our production capabilities and by demand for our products. Our selling prices and product mix are determined by a combination of global and regional supply and demand factors. The domestic price of potash is impacted by international price movements and to a large extent by Canadian and Russian producers that export to the domestic market. We benchmark our prices off of international prices and have benefited from the weakening dollar. During 2007, we have been able to raise prices because of strong demand.

 

Potash prices increased through the first nine months of 2007 and we expect this trend to continue into 2008 due primarily to potash demand increasing faster than potash supply. Fertecon forecasts a 3.2% annual demand growth rate from 2007 to 2011, which would require an average of 1.2 million additional tons of K2O every year to meet this future demand. However, potash suppliers are currently producing near their practical limits and announced expansions are not sufficient to keep pace with expected demand. As a result, we believe the global potash market will remain tight through at least 2011.

 

Domestic potash pricing is influenced by the interaction of global supply and demand; ocean, land and barge freight rates; and currency fluctuations. Our posted price for red granular potash in Carlsbad, New Mexico on December 1, 2006 was $195 per ton and has been increased 63% to $317 per ton as of December 1, 2007. Our posted price of granular langbeinite in Carlsbad on January 1, 2007 was $146 per ton and has been increased 17% to $171 per ton effective January 1, 2008. Actual prices realized in the market vary due to the timing and receipt of orders, among other factors.

 

Cost of Goods Sold

 

Our cost of goods sold reflect the production costs of our products less credit generated from the sale of our by-products. Our costs are more fixed than variable, so as our production increases or decreases, our average cost per ton decreases or increases, respectively. Primary production costs include direct labor and benefits, maintenance, natural gas, electricity, operating supplies, chemicals, depreciation and amortization, royalties, leasing costs and other plant overhead expenses. We pay royalties to federal, state and private lessors under our mineral leases, and such taxes are a percentage of the net sales of minerals extracted and sold from the applicable lease. In some cases, federal royalties for potash are paid on a sliding-scale basis that varies with the grade of ore extracted. Our potash production results in by-product salt, magnesium chloride and metal recovery salts. Sales of these by-products are recorded as a by-product credit that reduces the cost of goods sold.

 

We expect our labor and benefit costs to increase in 2008 due to the addition of personnel at our Carlsbad mines to increase production and address our maintenance backlog. We also anticipate that the currently tight labor market for skilled workers will continue in the regions in which we operate, which will result in higher costs to hire and retain skilled workers.

 

We have purchased natural gas derivatives in the past. Based on our analysis of the supply and pricing fundamentals for natural gas in our operating regions, we have chosen not to have any derivative contracts in place for 2008. However, we will continue to evaluate the possibility of entering into such arrangements in the future. Fluctuations in natural gas prices will affect our operating results.

 

In the past, we have used operating leases to finance our mining equipment. Operating lease payments are accounted for as a cost of goods sold. We do not plan to use operating leases in this manner in the future. As a result, operating lease payments will decrease over time as the leases expire or as we make prudent and economic decisions to buy-out the leases. We intend, however, to purchase mining equipment in the future and the resulting depreciation expense will increase our cost of goods sold.

 

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Selling and Administrative Expenses

 

Our selling and administrative expenses consist primarily of personnel and related costs; company airplane costs; costs related to arranging truck and rail transportation; legal, accounting and other professional fees; marketing and public relations expenses; and costs related to our information and technology systems. Because our facilities are difficult to reach by commercial aviation, we operate a company airplane in the management of our facilities.

 

We anticipate an increase in selling and administrative expenses after this offering. These expenses will include additional legal and corporate governance expenses, additional accounting staff costs, director compensation, exchange listing fees, transfer agent and stockholder-related fees and increased premiums for director and officer liability insurance coverage.

 

Other Income (Expense)

 

Other income (expense) consists primarily of interest and financing expenses. Other income (expense) also includes insurance proceeds in excess of property losses, loss on sale or disposition of assets, investment income, unrealized gains (losses) on investments, and other costs that do not relate directly to our core operations. In 2008, we may receive additional insurance proceeds in excess of our property losses related to the reconstruction of the warehouse at our East Mine.

 

Provision for Income Taxes

 

As a limited liability company, Intrepid Mining did not pay federal or state income taxes. The taxable income or loss of Intrepid Mining has historically been included in the state and federal tax returns of its members.

 

Intrepid Potash is a corporation that will be required to pay federal and state income taxes on its taxable income.

 

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Table of Contents

Results of Operations

 

The following table presents selected operations data for the nine months ended September 30, 2007 and 2006 and the years ended December 31, 2006, 2005 and 2004.

 

    

Nine Months Ended

September 30,
(unaudited)

    Year Ended December 31,  
     2007     2006     2006     2005     2004  
     (unaudited)                    
     (in thousands)  

Sales

   $ 158,525     $ 110,640     $ 154,291     $ 153,014     $ 114,326  

Less: freight and distribution costs

     18,400       9,909       14,686       12,065       13,293  
                                        

Net sales

     140,125       100,731       139,605       140,949       101,033  

Cost of goods sold

     99,263       78,804       113,949       95,051       68,913  
                                        

Gross Margin

     40,862       21,927       25,656       41,898       32,120  
                                        

Selling and administrative

     10,579       6,742       10,053       7,529       7,065  

Accretion of asset retirement obligation

     434       397       541       329       327  

Business interruption insurance settlements

     —         (884 )     (4,927 )     —         —    
                                        

Operating Income

     29,849       15,672       19,989       34,040       24,728  
                                        

Other Income (Expense):

          

Interest expense

     (6,587 )     (2,083 )     (2,907 )     (1,473 )     (1,802 )

Foreign currency translation

     12       —         —         —         —    

Insurance proceeds in excess of (less than) property costs

     —         (729 )     6,665       —         —    

Other income

     (140 )     536       351       47       195  
                                        

Income from Continuing Operations

     23,134       13,396       24,098       32,614       23,121  
                                        

Discontinued Operations:

          

Income from operations of discontinued oil and gas activities

     —         2,316       2,407       1,849       1,277  

Gain from disposal of discontinued oil and gas assets

     —         —         9,517       —         —    
                                        
     —         2,316       11,924       1,849       1,277  
                                        

Net Income

   $ 23,134     $ 15,712     $ 36,022     $ 34,463     $ 24,398  
                                        

 

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

 

Operating Results

 

For the nine months ended September 30, 2007, we benefited from tight global supply conditions resulting from strong potash demand. Domestic sales of potash in the 2007 period increased primarily due to increased demand resulting from high agricultural prices and the largest acreage of corn planted since the 1940s. Gross margins increased $19.0 million, or 87%, from $21.9 million for the nine months ended September 30, 2006 to $40.9 million for the nine months ended September 30, 2007 due primarily to increased sales and production volumes and modest price increases. Operating income increased $14.1 million, or 90%, from $15.7 million for the nine months ended September 30, 2006 to $29.8 million for the nine months ended September 30, 2007.

 

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Table of Contents

Net Sales

 

The following table presents potash and langbeinite sales and production for the subject periods.

 

     Nine Months Ended
September 30,
           
         2007            2006            Change            % Change      
    

(Net sales in millions, sales volumes and production in thousands,

percentages and price per ton actual)

 

Net sales of potash

   $ 125.9    $ 93.5    $ 32.4    35 %

Net sales of langbeinite

   $ 14.3    $ 7.2    $ 7.1    99 %

Sales volume of potash (tons)

     679      519      160    31 %

Sales volume of langbeinite (tons)

     132      69      63    91 %

Net sales per ton of potash ($/ton)

   $ 185    $ 180    $ 5    3 %

Net sales per ton of langbeinite ($/ton)

   $ 108    $ 105    $ 3    3 %

Production of potash (tons)

     660      586      74    13 %

Production of langbeinite (tons)

     126      112      14    13 %

 

Net sales of potash increased $32.4 million, or 35%, from $93.5 million for the nine months ended September 30, 2006 to $125.9 million for the nine months ended September 30, 2007 due primarily to increased sales volumes made possible by strong potash demand, increased production and inventory draw-downs. Production of potash increased 13% in the 2007 period compared to the 2006 period due primarily to better plant operating rates and productivity resulting from our maintenance and capital improvements. During the nine months ended September 30, 2006, larger international potash producers engaged in a price negotiation with China, which led to postponed global potash orders. We chose to build inventories during the negotiation, which we later sold at higher spot prices. Net sales of langbeinite increased $7.1 million, or 99%, from $7.2 million for the nine months ended September 30, 2006 to $14.3 million for the nine months ended September 30, 2007 due primarily to the same factors that increased potash sales. Production of langbeinite increased 13% in the 2007 period compared to the 2006 period due to improving operating rates at the dual potash and langbeinite plant.

 

Cost of Goods Sold

 

The following table presents our cost of goods sold for potash and langbeinite for the subject periods.

 

     Nine Months
Ended
September 30,
            
     2007    2006    Change     % Change  

Cost per ton of potash sold(1)

   $ 130    $ 140    $ (10 )   (7 )%

Cost per ton of langbeinite sold(2)

   $ 85    $ 86    $ (1 )   (1 )%

  (1)   Per ton potash costs include $6.57 and $7.79 of depreciation expense in 2007 and 2006, respectively.
  (2)   Per ton langbeinite costs include $11.68 and $12.49 of depreciation expense in 2007 and 2006, respectively.

 

The total cost of goods sold of our potash decreased $10, or 7%, from $140 per ton for the nine months ended September 30, 2006 to $130 per ton for the nine months ended September 30, 2007. Our costs are more fixed than variable so that as our production increases or decreases, our average cost per ton decreases or increases. Potash costs decreased 7% in the 2007 period due primarily to a 13% increase in production. The total cost of goods sold of our langbeinite decreased $1 per ton, or 1%, from $86 per ton for the nine months ended September 30, 2006 to $85 per ton for the nine months ended September 30, 2007.

 

Costs that increased materially during the nine months ended September 30, 2007 compared to the 2006 period included chemical, operating lease, labor, royalty and depreciation expenses. Chemical costs increased $1.9 million, or 39%, for the 2007 period due primarily to chemical additive testing to increase potash recoveries at the East Mine. Depending on the results of this test, we may or may not continue using the chemical in our

 

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process. Operating lease expenses increased $1.5 million, or 93%, for the 2007 period due to upgrades to our mining equipment financed using operating leases. Labor and benefit costs increased $1.8 million, or 5%, for the 2007 period due to wage increases and the addition of personnel to address maintenance backlogs. Royalty expense increased $1.7 million, or 50%, for the 2007 period due to increased sales revenue and higher langbeinite sales, which incur a slightly higher royalty than potash sales. Depreciation and amortization expenses increased $1.1 million, or 22%, for the 2007 period which reflects the capital replacement and improvement program in place in each of these periods and the completion of the dual potash and langbeinite plant.

 

Natural gas costs decreased $3.1 million, or 24%, for the 2007 period primarily due to changes in the fair value of our natural gas derivative contracts that are recorded as part of natural gas costs. Unrealized losses of $2.5 million were recorded for the 2006 period compared to unrealized gains of $1.6 million for the 2007 period.

 

Maintenance costs decreased $2.2 million, or 13%, for the 2007 period as a result of replacing contract maintenance labor with permanent labor and due to the improving condition of our assets as a result of our capital spending program. By-product sales credits reduced cost of goods sold by $4.9 million and $4.4 million in the nine months ended September 30, 2007 and September 30, 2006, respectively.

 

Selling and Administrative Expenses

 

Selling and administrative expenses increased $3.9 million, or 57%, from $6.7 million for the nine months ended September 30, 2006 to $10.6 million for the nine months ended September 30, 2007. Selling and administrative expenses increased in the 2007 period due primarily to legal and lobbying fees; additional sales, administrative and management staff; and larger aggregate salaries and bonuses paid to the management team. We are a party to various legal proceedings that challenge decisions of the Bureau of Land Management, or BLM, relating to oil and gas drilling in the Potash Area in southeastern New Mexico, where our New Mexico mines are located. We refer to this as the “Potash Area dispute in New Mexico”. We are attempting to cause the BLM to more accurately map and protect the potash resource, conduct a comprehensive safety study as to oil and gas drilling around our mines and limit drilling in areas that we believe contain potash deposits.

 

Business Interruption Insurance Settlements

 

In April 2006, a wind-shear struck the product warehouse at the East Mine in Carlsbad, New Mexico resulting in a property loss claim. Inventory losses resulting from the storage of product outdoors because of the damage to the warehouse were subsequently recovered from the insurance property loss claim. In the nine months ended September 30, 2006, we also received a settlement of $0.9 million for lost margin on the langbeinite inventory destroyed when the East Mine warehouse was damaged. We refer to this event as the “East Mine wind-shear event” and to the resulting claim as the “East Mine wind-shear claim”.

 

Other Income (Expense)

 

Other expenses increased $4.4 million, or 195%, from a net expense of $2.3 million for the nine months ended September 30, 2006 to a net expense of $6.7 million for the nine months ended September 30, 2007 due primarily to an increase in interest expense. Interest expense increased $4.5 million, or 216% in the 2007 period due primarily to higher net borrowing against our existing senior credit facility to redeem the membership interest of Long Canyon, LLC for $100.0 million.

 

In the nine months ended September 30, 2006, additional insurance claims from the East Mine wind-shear claim were still considered contingent and could not yet be recognized by us under generally accepted accounting principles, or GAAP. For the nine months ended September 30, 2006, an expense was recorded because insurance proceeds related to this loss were $0.7 million less than our deductible and related costs. The warehouse’s replacement cost is expected to be approximately $22.0 million. Additional insurance payments to reconstruct the warehouse are contingent upon review by the insurer and, therefore, will be recognized in the future as settlements, if any, are agreed upon.

 

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Discontinued Operations

 

During the last quarter of 2006, we sold substantially all of our oil and gas assets. Income from discontinued operations of these oil and gas activities was $2.3 million for the nine months ended September 30, 2006.

 

Provision for Income Taxes

 

As a limited liability company, Intrepid Mining did not pay federal or state income taxes. The taxable income or loss of Intrepid Mining has historically been included in the state and federal tax returns of its members.

 

Intrepid Potash is a corporation that will be required to pay federal and state income taxes on its taxable income.

 

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

 

Operating Results

 

Operating results declined in 2006 compared to 2005 due primarily to production lost because of the production disruptions discussed below, partially offset by higher potash prices in 2006. Gross margins decreased $16.2 million, or 39%, from $41.9 million for the year ended December 31, 2005 to $25.7 million for the year ended December 31, 2006 due primarily to decreased sales volumes resulting from the two production disruptions. Operating income decreased $14.0 million, or 41%, from $34.0 million in 2005 to $20.0 million in 2006, again reflecting lower sales volumes and also reflecting increased cost of goods sold and selling and administrative expenses.

 

West Mine shaft disruption: Potash production at the West Mine decreased 93,000 tons, or 23%, from 398,000 tons in 2005 to 305,000 tons in 2006 due primarily to an unexpected production disruption. In October 2006, unused utilities in the West Mine production shaft broke loose due to an increase in groundwater flows into the shaft resulting from heavy rains from Hurricane John. We incurred a 54-day shutdown to remove all the unused utilities and to improve groundwater capture and conveyance systems in the shaft. Under the then terms of our business interruption insurance policy, the first 30 days of the interruption were not covered by insurance. We refer to this event as the “West Mine shaft disruption” and to the resulting business interruption insurance claim as the “West Mine shaft claim”.

 

East Mine plant ramp-up disruption: Potash production at the East Mine decreased 83,000 tons, or 24%, in 2006 compared to 2005 due primarily to the October 2005 commissioning of the dual potash and langbeinite facility. Implementing the new milling process at this facility, which is a first-of-its-kind process, involved operational inefficiencies which resulted in lower operating rates in the last quarter of 2005 and through the first three quarters of 2006. This investment in the East Mine allowed us to enter and process a mixed ore body containing both potash and langbeinite. We refer to this production disruption as the “East Mine plant ramp-up disruption”.

 

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Net Sales

 

The following table presents potash and langbeinite sales and production for the subject years.

 

     Year Ended December 31,             
         2006            2005            Change             % Change      
    

(Net sales in millions, sales volumes and production in thousands,

percentages and price per ton actual)

 

Net sales of potash

   $ 129.6    $ 140.3    $ (10.7 )   (8 )%

Net sales of langbeinite

   $ 10.0    $ 0.7    $ 9.3     1,329 %

Sales volume of potash (tons)

     729      869      (140 )   (16 )%

Sales volume of langbeinite (tons)

     95      6      89     1,483 %

Net sales per ton of potash ($/ton)

   $ 178    $ 161    $ 17     11 %

Net sales per ton of langbeinite ($/ton)

   $ 106    $ 108    $ (2 )   (2 )%

Production of potash (tons)

     725      897      (172 )   (19 )%

Production of langbeinite (tons)

     156      15      141     940 %

 

Net sales of potash decreased $10.7 million, or 8.0%, from $140.3 million in 2005 to $129.6 million in 2006 due to decreased sales volumes resulting primarily from the production disruptions discussed previously under “—Operating Results”, partially offset by increased prices. The average net sales price for potash increased $17 per ton, or 11%, from $161 per ton in 2005 to $178 per ton in 2006 due in part to strong industrial potash demand and price increases initiated by international competitors. Potash production decreased 172,000 tons, or 19%, from 897,000 tons in 2005 to 725,000 tons in 2006 due primarily to the West Mine shaft disruption and the East Mine plant ramp-up disruption. Net sales of langbeinite increased $9.3 million, or 1,329%, from $0.7 million in 2005 to $10.0 million in 2006 due to a full year of langbeinite production and sales in 2006. Langbeinite production increased 141,000 tons, or 940%, from 15,000 tons in 2005 to 156,000 tons in 2006 due primarily to having a full year of operations in the newly commissioned East Mine plant compared to only three months in 2005.

 

Cost of Goods Sold

 

The following table presents our cost of goods sold for potash and langbeinite for the subject years.

 

     Year Ended
December 31,
            
     2006    2005    Change     % Change  

Cost per ton of potash sold(1)

   $ 145    $ 113    $ 32     28 %

Cost per ton of langbeinite sold(2)

   $ 88    $ 201    $ (113 )   (56 )%

  (1)   Per ton potash costs include $7.81 and $4.81 of depreciation expense in 2006 and 2005, respectively.
  (2)   Per ton langbeinite costs include $12.93 and $59.39 of depreciation expense in 2006 and 2005, respectively. In 2005, langbeinite depreciation and cost of goods sold were temporarily high due to limited production and high start-up costs.

 

The total cost of goods sold of our potash increased $32 per ton, or 28%, from $113 per ton in 2005 to $145 per ton in 2006 due primarily to the impact of spreading our fixed cost structure over lower production volumes resulting from the production disruptions mentioned previously under “—Operating Results”. The total cost of goods sold of our langbeinite decreased $113 per ton, or 56%, from $201 per ton in 2005 to $88 per ton in 2006 due primarily to high langbeinite start-up costs in 2005 and langbeinite production progressing closer to expected output in 2006.

 

Costs that increased materially in 2006 compared to 2005 included labor and benefits, maintenance, depreciation, royalty and operating lease expenses. Labor and benefits costs increased $5.3 million, or 14%, in 2006 due primarily to increases in employee headcount to staff the langbeinite plant at our East Mine and address our maintenance backlog and pay rate increases needed to compete for labor. Maintenance costs increased $3.4

 

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million, or 19%, in 2006 relative to 2005. Maintenance costs were reduced by $3.9 million in 2005 due to the usage of low-cost spare parts inventory purchased from the previous owners of the Carlsbad facilities. Depreciation and amortization expenses increased $2.4 million, or 53%, in 2006 which resulted primarily from our capital replacement and improvement program and the completion of the dual potash and langbeinite plant at the East Mine. Natural gas costs increased 16%, from $14.1 million in 2005 to $16.2 million in 2006 due primarily to the change in the fair value of our natural gas derivative contracts. Unrealized losses of $2.3 million were recorded as a component of natural gas costs in 2006 compared to a $0.2 million gain on such contracts in 2005. Royalty expense increased $1.8 million, or 59%, in 2006 due to the expiration of a temporary royalty reduction on federal potash leases, higher potash prices and increased langbeinite sales. Operating lease expenses increased $1.7 million, or 161%, in 2006 due primarily to upgrades to our mining equipment financed using operating leases.

 

Selling and Administrative Expenses

 

Selling and administrative expenses increased $2.6 million, or 34%, from $7.5 million in 2005 to $10.1 million in 2006. The increase was due primarily to increased legal and lobbying fees incurred in connection with the Potash Area dispute in New Mexico, additional sales, administrative and management staff and selling expenses related to adding langbeinite as a product line and larger aggregate salaries and bonuses paid to the management team.

 

Business Interruption Insurance Settlements

 

We recognized $4.9 million in business interruption insurance settlements in 2006. The West Mine shaft claim resulted in a $4.0 million settlement for the 24 days of outage that were covered by our business interruption insurance policy. Additionally, the East Mine wind-shear claim resulted in a settlement of $0.9 million for lost margin on langbeinite destroyed when the East Mine warehouse was damaged.

 

Other Income (Expense)

 

We had other income of $4.1 million in 2006 compared to an expense of $1.4 million in 2005. We recognized a net gain of $6.7 million in 2006 related to property damage recoveries from the East Mine wind-shear claim. The insurance proceeds of $9.5 million for property damage replacement were received by early January 2007 and have been partially offset by the deductible and related costs. Additional insurance payments to reconstruct the warehouse are contingent upon review by the insurer and, therefore, will be recognized in the future as settlements, if any, are agreed upon.

 

Interest expense increased $1.4 million, or 97%, from $1.5 million in 2005 to $2.9 million in 2006 due to increased debt incurred as part of our capital improvement program.

 

Discontinued Operations

 

In 2006, we sold substantially all of our oil and gas assets for gross proceeds of $19.2 million resulting in a gain of $9.5 million from the sale of discontinued oil and gas activities. Income from discontinued operations of these oil and gas activities was $1.8 million in 2005 and $2.4 million in 2006. The remaining undeveloped oil and gas assets were distributed to the members of Intrepid Mining in 2007.

 

Provision for Income Taxes

 

As a limited liability company, Intrepid Mining did not pay federal or state income taxes. The taxable income or loss of Intrepid Mining has historically been included in the state and federal tax returns of its members.

 

Intrepid Potash is a corporation that will be required to pay federal and state income taxes on its taxable income.

 

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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

 

Operating Results

 

During 2005, we benefited from increasing potash prices resulting from a trend of potash demand increasing faster than supply beginning in 2004. In 2005, we also benefited from a full year of operations from the facilities acquired in 2004. Costs increased in 2005 relative to 2004 due primarily to a full year of operating costs at all of our facilities and general input cost inflation. Gross margins increased $9.8 million, or 31%, from $32.1 million for the year ended December 31, 2004 to $41.9 million for the year ended December 31, 2005 due to increased sales volumes resulting from a full year of operations at our facilities and a 35% increase in potash pricing. Operating income increased $9.3 million, or 38%, from $24.7 million in 2004 to $34.0 million in 2005.

 

Net Sales

 

The following table presents potash and langbeinite sales and production for the subject years.

 

     Year Ended December 31,            
         2005            2004            Change            % Change      
    

(Net sales in millions, sales volumes and production in thousands,

percentages and price per ton actual)

 

Net sales of potash

   $ 140.3    $ 101.0    $ 39.3    39 %

Net sales of langbeinite

   $ 0.7      n/a      n/a    n/a  

Sales volume of potash (tons)

     869      846      23    3 %

Sales volume of langbeinite (tons)

     6      n/a      n/a    n/a  

Net sales per ton of potash ($/ton)

   $ 161    $ 119    $ 42    35 %

Net sales per ton of langbeinite ($/ton)

   $ 108      n/a      n/a    n/a  

Production of potash (tons)

     897      827      70    8 %

Production of langbeinite (tons)

     15      n/a      n/a    n/a  

 

Net sales of potash increased $39.3 million, or 39%, from $101.0 million in 2005 to $140.3 million in 2004 due primarily to increased potash prices. The average net sales prices for potash increased $42 per ton, or 35%, from $119 per ton in 2004 to $161 per ton in 2005 due primarily to potash demand increasing faster than supply and price increases initiated by our international competitors. Production of potash increased 70,000 tons, or 8%, from 827,000 tons in 2004 to 897,000 tons in 2005 due primarily to a full year of operations at the facilities acquired in 2004. Net sales of langbeinite commenced in 2005 and resulted in $0.7 million in sales in 2005.

 

Cost of Goods Sold

 

The following table presents our cost of goods sold for potash and langbeinite for the subject years.

 

     Year Ended
December 31,
           
     2005    2004    Change    % Change  

Cost per ton of potash sold(1)

   $ 113    $ 82    $ 31    38 %

Cost per ton of langbeinite sold(2)

   $ 201      n/a      n/a    n/a  

  (1)   Per ton potash costs include $4.81 and $2.88 of depreciation expense in 2005 and 2004, respectively.
  (2)   Per ton langbeinite costs include $59.39 of depreciation expense in 2005.

 

The total cost of goods sold of our potash increased $31 per ton, or 38%, from $82 per ton in 2004 to $113 per ton in 2005 due primarily to increased labor, maintenance and natural gas expenses. Also, the majority of our operating costs are fixed so the East Mine plant ramp-up disruption resulted in higher average costs of production per ton produced at the East Mine in the latter half of 2005. After the acquisition of the Carlsbad facilities in

 

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2004, we began the process of restoring and properly maintaining the assets. After an assessment of the facilities, we implemented a restorative program that resulted in additional labor and maintenance costs to restore the facilities to long-term reliability. The total cost of goods sold of our langbeinite was $201 per ton in 2005, which was high due to spreading the start-up costs related to the commissioning of the dual potash and langbeinite plant over a small amount of production.

 

Labor and benefit costs increased $10.2 million, or 36%, in 2005 compared to 2004 due primarily to additional maintenance personnel and a full year of ownership in 2005. Maintenance costs increased $10.2 million, or 129%, in 2005 compared to 2004 due primarily to addressing deferred maintenance and a full year of ownership in 2005. Maintenance costs were reduced by $3.9 million in 2005 due to the usage of low-cost spare parts inventory purchased from the previous owners of the Carlsbad facilities.

 

Natural gas and electricity costs increased $7.6 million, or 46%, in 2005 due primarily to a full year of ownership in 2005 and the effect of Hurricanes Katrina and Rita on the national energy infrastructure.

 

By-product sales credits reduced cost of goods sold by $5.9 million and $4.6 million in 2005 and 2004, respectively.

 

Selling and Administrative Expenses

 

Selling and administrative expenses increased $0.4 million, or 6%, from $7.1 million in 2004 to $7.5 million in 2005 due primarily to the addition of staff needed to manage the assets acquired in 2004.

 

Other Income (Expense)

 

We had other expense of $1.6 million in 2004 compared to other expense of $1.4 million in 2005, which consisted primarily of interest expense.

 

Discontinued Operations

 

Income from discontinued oil and gas activities was $1.3 million in 2004 and $1.8 million in 2005.

 

Provision for Income Taxes

 

As a limited liability company, Intrepid Mining did not pay federal or state income taxes. The taxable income or loss of Intrepid Mining has historically been included in the state and federal tax returns of its members.

 

Liquidity and Capital Resources

 

Since inception, we have funded our operations primarily through borrowings under our existing senior credit facility and through funds generated by operations. We believe that the net proceeds retained by Intrepid Potash from this offering, cash flow from operations and available borrowings under our existing senior credit facility described below will be sufficient to fund our operations, our capital spending program and debt service requirements for at least the next two years. If we do not achieve forecasted results from operations, additional financing in the form of debt or equity may be required to offset any cash flow deficiencies. As described below, our existing senior credit facility covenants are calculated using cash flow and fixed charges, so materially adverse operating results could restrict the availability of our credit.

 

Cash Balances and Cash Flows

 

As of September 30, 2007 and December 31, 2006, we had cash and cash equivalents of $2.5 million and $0.3 million, respectively. As of September 30, 2007 and December 31, 2006, we had $81.5 million and $17.6 million available, respectively, under the revolving portion of our existing senior credit facility. We traditionally

 

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pay down our revolving line of credit when we have excess cash, because rates of return for short term investments are generally substantially less than the interest rate on our line of credit, which results in lower cash balances.

 

Operating Activities

 

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

 

Total cash provided by operating activities was $31.2 million for the nine months ended September 30, 2007 compared to $6.9 million for the comparable 2006 period. The $24.3 million increase in cash provided by operating activities is due primarily to increases in operating income, a collection of accounts receivable related to insurance reimbursements and changes in inventory levels. Net income increased $7.4 million, or 47%, in the 2007 period compared to the 2006 period due primarily to an increase in sales volumes and potash pricing. Accounts receivable collections from business interruption insurance settlements provided $3.7 million in the 2007 period. Inventory levels increased $14.0 million from December 31, 2005 to September 30, 2006, compared to a decrease in inventory levels of $3.1 million from December 31, 2006 to September 30, 2007. The increase in inventories in the nine months ended September 30, 2006 was a result of our decision to reduce sales while global potash orders were postponed during potash price negotiations between China and international potash producers.

 

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

 

Total cash provided by operating activities decreased to $14.8 million in 2006 from $37.8 million in 2005. The $23.0 million decrease in cash provided by operating activities in 2006 relative to 2005 was due primarily to the timing of insurance payments and changes in accounts payable and trade accounts receivable. We recognized income from business interruption insurance settlements resulting from the West Mine shaft claim and from an insurance settlement in excess of property losses resulting from the East Mine wind-shear claim. A receivable for these combined insurance claims totaled $12.0 million at December 31, 2006. Changes in accounts payable and trade accounts receivable resulted in a net $3.7 million decrease in cash flows from operations in 2006 compared to a net increase of $11.6 million in 2005. These changes were due to the timing of sales, purchases and receipt of payments.

 

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

 

Total cash provided by operating activities increased $6.9 million to $37.8 million in 2005 from $30.9 million in 2004 due primarily to increased operating income and a decrease in accounts receivable offset by a decrease in accounts payable related to discontinued operations. Net income increased $10.1 million in 2005 as a result of higher prices on our potash sales and a full year of operating the facilities acquired in 2004. The decrease in accounts receivable resulted in a $4.5 million increase to cash provided by operating activities in 2005, compared to a decrease of $4.4 million in 2004. Payables related to the discontinued operations of the oil and gas activities decreased cash flows from operations in 2005 by $7.8 million, compared to an increase of $5.3 million in 2004.

 

Investing Activities

 

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

 

Total cash used in investing activities was $14.4 million for the nine months ended September 30, 2007 compared to $9.3 million for the same period in 2006. Cash used in investing activities increased $5.1 million in the 2007 period due primarily to an additional $12.0 million spent on replacing and upgrading plant assets, increasing production and the reconstruction of the East Mine warehouse, which was destroyed in the East Mine wind-shear event. Cash spent on the warehouse reconstruction was offset by insurance proceeds totaling $6.9 million that were received in early 2007.

 

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Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

 

Total cash provided by investing activities was $1.3 million in 2006 compared to $23.0 million used in investing activities in 2005. The $24.3 million change was primarily due to decreased capital spending in 2006 and the sale of substantially all of our oil and gas assets. During 2005, additions to property, plant and equipment were $17.6 million compared to $12.2 million in 2006. Completion of the East Mine dual potash and langbeinite plant added significant property, plant and equipment spending in 2005. In addition, $4.1 million was spent on additions to mineral properties during 2005, the majority of which related to horizontal mine development at the Moab Mine. During 2006, we received net proceeds of $18.7 million from the sale of substantially all of our oil and gas assets.

 

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

 

Total cash used in investing activities was $23.0 million in 2005 compared to $48.0 million used in investing activities in 2004. The $25.0 million decrease was primarily due to the purchase of the Carlsbad and Wendover assets during 2004 for net cash of $38.5 million, offset by a $12.8 million increase in additions to property, plant and equipment and mineral properties during 2005 due to the completion of the East Mine dual potash and langbeinite plant and the horizontal mine development at the Moab Mine, as well as increased costs due to a full year of operations in 2005.

 

Financing Activities

 

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

 

Total cash used in financing activities was $14.5 million for the nine months ended September 30, 2007 compared to $2.3 million provided by financing activities for the same period in 2006. In June 2007, Potash Acquisition, LLC, or PAL, an affiliate of Platte River Ventures L.L.P. and an unrelated party to Intrepid Mining, acquired a 20% membership interest in Intrepid Mining for $38.8 million, net of transaction costs, inclusive of our obligations and liabilities. Funds received were used to decrease the outstanding balance of the revolving portion of our existing senior credit facility. Net payments on our long-term debt totaled $41.4 million in 2007. Distributions to our members totaled $10.5 million, including special distributions to our members of $3.9 million. These distributions were funded by draw-downs on our existing revolving line of credit, and were permitted under our existing senior credit facility discussed below.

 

During the nine months ended September 30, 2006, net proceeds from long-term debt totaled $9.6 million and distributions to our members totaled $7.3 million.

 

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

 

Total cash used in financing activities was $16.0 million in 2006 compared to $16.9 million in 2005. During 2006, net proceeds from long-term debt totaled $0.2 million and distributions to our members totaled $10.6 million. In addition, our members agreed to redeem the membership interests of Long Canyon, LLC for $5.0 million in cash and a $95.0 million note payable.

 

During 2005, net proceeds from long-term debt totaled $0.8 million, and distributions to our members totaled $17.6 million.

 

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

 

Total cash used in financing activities was $16.9 million in 2005 compared to $18.9 million provided by financing activities in 2004. During 2005, net proceeds from long-term debt totaled $0.8 million and distributions to our members totaled $17.6 million. During 2004, net proceeds from long-term debt totaled $24.0 million, which we used to finance the purchase of the Carlsbad and Wendover assets. Distributions to our members totaled $5.1 million during 2004.

 

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Existing Senior Credit Facility

 

The credit agreement, as amended, governing the existing senior credit facility was originally entered into in February 2000. The agreement currently provides for a maximum committed $125 million five-year revolving loan that matures on March 9, 2012, and a $50 million amortizing term loan that matures on March 9, 2014. The term loan requires quarterly payments of $1.25 million, with the balance of the revolving loan and the term loan due at maturity. The senior credit facility is secured by substantially all of the assets of Intrepid Mining and its subsidiaries. As of September 30, 2007, $43.3 million had been drawn against the revolving line of credit and there was $0.2 million in outstanding letters of credit, leaving $81.5 million of additional credit available under the credit agreement. In October 2007, we borrowed an additional $15.0 million and made corresponding distributions to members of Intrepid Mining.

 

Outstanding balances under the revolving loan and the term loan bear interest at a floating rate, which, at our option, is either (i) the London Interbank Offered Rate (LIBOR), plus a margin of between 1.25% and 2.5%, depending upon our leverage ratio, which is equal to the ratio of our total funded debt to our adjusted earnings before income taxes, depreciation and amortization; or (ii) an alternative base rate. We must pay a quarterly commitment fee on the outstanding portion of the unused revolving credit facility amount of between 0.25% and 0.50%, depending on our leverage ratio.

 

The senior credit facility contains certain covenants customary for financings of this type, including, without limitation, restrictions on: (i) indebtedness; (ii) the incurrence of liens; (iii) investments and acquisitions; (iv) mergers and the sale of assets; (v) guarantees; (vi) distributions; and (vii) transactions with affiliates. The credit facility also contains a requirement to maintain the following: at least $3.0 million of working capital; a ratio of adjusted earnings before income taxes, depreciation and amortization to fixed charges of 1.3 to 1.0; and a ratio of the outstanding principal balance of debt to adjusted earnings before income taxes, depreciation and amortization of 3.5 to 1.0.

 

The senior credit facility also contains events of default customary for financings of this type, including, without limitation, failure to pay principal and interest in a timely manner, the breach of certain covenants or representations and warranties, the occurrence of a change in control, and judgments or orders of the payment of money in excess of $1.0 million on claims not covered by insurance. We were in compliance with all covenants with respect to the senior credit facility on September 30, 2007.

 

Upon the closing of this offering, Intrepid Potash intends to replace Intrepid Mining as the borrower under the senior credit facility and request that Intrepid Mining be released. Intrepid Potash intends to repay $            million of the amount outstanding using net proceeds from this offering. Intrepid Mining will repay the remaining outstanding amount.

 

Capital Expenditures

 

We operate in a capital-intensive industry that requires consistent capital expenditures to replace assets necessary to sustain safe and reliable production. We purchased relatively old potash facilities, some out of bankruptcy, that were all in need of investment. At each facility, we have developed a three-part accelerated investment plan to maintain safe and reliable production, improve and modernize equipment, increase production and decrease production costs per ton. We have identified key projects at each of our facilities that we believe will allow us to increase our potash and langbeinite production.

 

The primary focus of our improvement and modernization program has been the replacement of certain key items such as underground mining equipment. Through April 2007, this equipment was financed primarily through operating leases, which were recorded as an expense. We now purchase the equipment and capitalize the costs. Additionally, we are modernizing our control systems, belt-system technology, communications systems and other equipment. We also expect that our current high levels of spending to improve and modernize equipment will decrease in the future as we complete our accelerated investment plan.

 

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Total capital spending in 2008 is expected to be approximately $90.0 million, which includes approximately $16.0 million to replace assets needed to maintain production, $21.0 million to improve and modernize equipment, $43.0 million to increase production as described more fully below, and $10.0 million, which we expect will be reimbursed by our insurance, to complete the replacement of the East Mine warehouse. Of the $21.0 million planned to improve and modernize equipment, approximately $12.0 million is planned for underground mining equipment and other equipment we would previously have leased. We believe our cash flow and debt capacity will be adequate to fund the capital spending program in 2008.

 

In 2008, we expect to undertake the following projects to improve and increase production:

 

   

begin construction of the HB Mine, a project with a total estimated cost of $72.0 to $82.0 million to be completed in 2010, with approximately $22.5 million to be spent in 2008;

 

   

install a horizontal stacker or underground storage system and implement a project to improve potash recoveries at the West Mine, projects with a total estimated cost of $13.5 to $15.0 million to be completed in 2009, with approximately $9.0 million to be spent in 2008;

 

   

install new thickeners to improve potash recoveries and begin a langbeinite recovery project at the East Mine, projects with a total estimated cost of $15.0 to $21.0 million to be completed in 2010, with approximately $6.0 million to be spent in 2008; and

 

   

add a new horizontal solution mining cavern at the Moab Mine, a project with a total estimated cost of $5.0 to $6.0 million to be completed in 2008.

 

All figures for future capital spending are initial estimates that are subject to change as the projects are further developed.

 

Capital expenditures in 2007 are expected to be $29.0 million, which includes approximately $11.7 million to replace assets needed to maintain production, $5.1 million to improve and modernize equipment, $0.9 million to increase production related primarily to the HB Mine and $11.3 million, which was reimbursed by our insurance, towards replacing the East Mine warehouse. Of the $5.1 million expenditure to improve and modernize equipment, approximately $3.5 million was for underground mining equipment and other equipment we would previously have leased.

 

Capital expenditures for mining operations in 2006 were $12.4 million, which was used primarily to replace assets needed to maintain production. Included in this $12.4 million expenditure was $0.6 million towards replacing the East Mine warehouse, which was reimbursed by our insurance. In 2006, we also entered into operating leases for approximately $9.7 million in mining equipment.

 

Capital expenditures in 2005 were $21.7 million, which includes approximately $9.0 million to replace assets needed to maintain production and $12.7 million to increase production. The majority of the $12.2 million expenditure was incurred for the new langbeinite plant at the East Mine. In 2005, we also leased approximately $2.8 million in mining equipment and other equipment designed to improve and modernize our equipment.

 

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Contractual Obligations

 

As of December 31, 2006, we had contractual obligations totaling $241.3 million, as indicated below. All contractual commitments shown are for the full calendar year indicated.

 

    Payments due by period
    Total   2007   2008   2009   2010   2011   2012  

2013

and later

    (in thousands)

Current and long-term debt(a)

  $ 132,125   $ 3,750   $ 5,000   $ 5,000   $ 5,000   $ 5,000   $ 87,125   $ 21,250

Imputed interest on long-term debt(b)

    52,168     9,249     8,986     8,636     8,286     7,936     7,587     1,488

Capital lease obligations(c)

    64     59     5                    

Operating lease obligations(d)

    20,902     4,604     4,403     4,211     3,382     2,673     692     937

Purchase commitments(e)

    930     930                        

Pension obligations(f)

    7,924     84     105     130     146     182     198     7,079

Asset retirement obligation(g)

    17,181                             17,181

Minimum royalty payments(h)

    10,010     385     385     385     385     385     385     7,700
                                               

Total

  $ 241,304   $ 19,061   $ 18,884   $ 18,362   $ 17,199   $ 16,176   $ 95,987   $ 55,635
                                               

 

As of September 30, 2007, we had contractual obligations totaling $185.5 million, as indicated below. All contractual commitments shown are for the full calendar year indicated.

 

    Payments due by period
    Total   Q4, 2007   2008   2009   2010   2011   2012  

2013

and later

    (in thousands)

Current and long-term debt(a)

  $ 90,800   $ 1,250   $ 5,000   $ 5,000   $ 5,000   $ 5,000   $ 48,300   $ 21,250

Imputed interest on long-term debt(b)

    35,689     6,356     6,269     5,919     5,569     5,219     4,869     1,488

Capital lease obligations(c)

    22     17     5                    

Operating lease obligations(d)

    20,171     1,294     4,980     4,787     3,957     3,248     869     1,036

Purchase commitments(e)

    2,429     2,429                        

Pension obligations(f)

    7,840         105     130     146     182     198     7,079

Asset retirement obligation(g)

    18,556                             18,556

Minimum royalty payments(h)

    10,010     385     385     385     385     385     385     7,700
                                               

Total

  $ 185,517   $ 11,731   $ 16,744   $ 16,221   $ 15,057   $ 14,034   $ 54,621   $ 57,109
                                               

 


  (a)   Term and revolving loan portions of the existing senior credit facility. Payments indicated include only principal.
  (b)   Interest rates are adjusted frequently, and interest payments will vary directly with the entire loan balance outstanding, inclusive of a material revolving portion. Interest commitments have been estimated above assuming the entire loan as of the dates shown is not repaid until its maturity dates, using the annual figures as averages for the year, and using a 7.0% interest rate.
  (c)   Capital lease commitment for a time clock system.
  (d)   All operating lease payments inclusive of anticipated sales tax, electrical substation leases classified as an electrical cost and railcar leases classified as a distribution cost.
  (e)   Purchase contractual commitments include the approximate amount due a vendor in the event of the cancellation of a construction contract, a non-cancelable order for imported chemicals, a purchase commitment for a continuous miner, and minimum commitments under chemical purchase contracts.
  (f)   Pension distributions as determined by our actuaries.
  (g)   We are obligated to reclaim and remediate lands which our operations have disturbed, but because of the long-term nature of our reserves and facilities, we estimate that none of those expenditures will be required until after 2013. Commitments shown are in today’s dollars and undiscounted.
  (h)   Annual minimum royalties due under mineral leases.

 

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Payments related to derivative contracts cannot be reasonably estimated due to variable market conditions and are not included in the above tables.

 

Off-Balance Sheet Arrangements

 

As of the date of this prospectus, we do not have any off-balance sheet arrangements, aside from the operating leases depicted in “—Contractual Obligations” above.

 

Application of Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements. Actual results could differ from such estimates and assumptions, and any such differences could result in material changes to our financial statements. The following discussion presents information about our most critical accounting policies and estimates.

 

Revenue Recognition—Revenue is recognized when title transfers to a customer, selling price is determinable, and collection is reasonably assured. Title passes at the shipping point: the plant, a distribution warehouse, or a port. Title for some shipments into Mexico transfers at the border crossing, the port of exit. Prices are set at the time of or prior to shipment. We use few sales contracts so prices are based on our current published prices or upon negotiated short-term purchase orders from customers.

 

We quote prices to customers both on a delivered basis and on the basis of pick-up at our plants and warehouses. Transportation and distribution costs are incurred only on a portion of the sales as customers often arrange and pay for delivery to their sites. Our gross sales include freight and distribution costs, but we do not believe gross sales provides an accurate measurement of our performance in the market due to the inclusion of freight and distribution costs so we view net sales, which is gross sales less freight and distribution costs, as the key performance indicator. We primarily utilize net sales per ton in the analysis of our sales trends in order to remove the effect of transportation and delivery costs on pricing.

 

Application of this policy requires that we make estimates regarding creditworthiness of the customer, which impact our determination of allowance for doubtful accounts. We make those estimates based on the most recent information available and historical experience, but they may be affected by subsequent changes in market conditions.

 

Property, Plant and Equipment—Expenditures for new facilities or expenditures which extend the useful lives of our existing facilities are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated productive lives of such facilities. Productive lives range from 2 to 25 years. Productive lives are reviewed annually and changed as necessary. Interest expense allocable to the cost of developing mining properties and to constructing new facilities is capitalized until operations commence. Gains or losses from normal sales and retirements of assets are included in other income or expense.

 

Mineral Properties and Development Costs—Mineral properties and development costs, which we refer to collectively as mineral properties, include acquisition costs, the cost of drilling wells and the cost of other development work. Depletion of mineral properties is provided using the units-of-production method over the estimated life of the relevant ore body. The lives of reserves used for accounting purposes are shorter than current reserve life determinations prepared by us and reviewed and independently determined by Agapito Associates, Inc., due to uncertainties inherent in long-term estimates and in order to correlate to estimated building and plant lives of 25 years or less, where appropriate. Certain development costs are depleted over the life of the ore body or the life of the facility. Reserve studies and mine plans are updated periodically, and the remaining net balance of the mineral properties is depleted over the updated estimated life. Possible impairment is also considered. Our proven and probable reserves are based on extensive drilling, sampling, mine modeling and mineral recovery from which economic feasibility has been determined. The price sensitivity of reserves

 

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depends upon several factors including ore grade, ore thickness and ore mineral composition. The reserves are estimated based on information available at the time the reserves are calculated. Recovery rates vary depending on the mineral properties of each deposit and the production process used. The reserve estimate utilizes the average recovery rate for the deposit, which takes into account the processing methods scheduled to be used. The cutoff grade, or lowest grade of mineralized material considered economic to process, varies with material type, mineral recoveries and operating costs. Proven and probable reserves are based on estimates, and no assurance can be given that the indicated levels of recovery of potash and langbeinite will be realized or that production costs and estimated future development costs will not exceed the net realizable value of the products. Tons of potash and langbeinite in the proven and probable reserves are expressed in terms of expected finished tons of product to be realized net of estimated losses. Reserve estimates may require revision based on actual production experience. Market price fluctuations of potash or langbeinite, as well as increased production costs or reduced recovery rates, could render proven and probable reserves containing relatively lower grades of mineralization uneconomic to exploit and might result in a reduction of reserves. In addition, the provisions of our mineral leases are subject to periodic readjustment, including royalties payable, by the state and federal government, which could impact the economics of our reserve estimates. Changes in the estimated reserves could have a material impact on our results of operations and financial position.

 

Inventory—Inventory consists of product and by-product stocks that are ready for delivery to market, mined ore, potash in evaporation ponds and parts and supplies inventory. Product and by-product inventory cost is determined using the lower of average cost for the year or estimated net realizable value. For purposes of identifying and allocating costs, inventory is assumed to turn over on a first-in-first-out basis. The value of potash within the solar ponds, work-in-process inventories, is estimated based on the amount of finished inventory expected to be recovered and the lower of cost incurred through the stage of completion or net realizable value less costs to complete the process. Estimates are used in the allocation of costs to different products, including by-products.

 

We conduct detailed reviews related to the net realizable value of parts inventory, giving consideration to quality, slow moving items, obsolescence, excessive levels and other factors. Parts inventories not having turned-over in more than a year, excluding parts classified as critical spares, are reviewed for obsolescence and included in the determination of an allowance for obsolescence. If the carrying amount exceeds the estimated net realizable value, we adjust our inventory balances accordingly. If the actual sales price ultimately realized were to be less than our estimate of net realizable value, additional losses would be incurred in the period of liquidation.

 

Recoverability of Long-Lived Assets—We evaluate our long-lived assets for impairment in accordance with Statement of Financial Accounting Standard, or SFAS, 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” when events or changes in circumstances indicate that the related carrying amount may not be recoverable. Impairment is considered to exist if the total estimated future cash flow on an undiscounted basis is less than the carrying amount of the related assets. An impairment loss is measured and recorded based on the discounted estimated future cash flows. Changes in significant assumptions underlying future cash flow estimates or fair values of assets may have a material effect on our financial position and results of operations.

 

Factors we generally will consider important and which could trigger an impairment review of the carrying value of long-lived assets include the following:

 

   

significant underperformance relative to expected operating results;

 

   

significant changes in the manner of use of assets or the strategy for our overall business;

 

   

underutilization of our tangible assets;

 

   

discontinuance of certain products by us or our customers;

 

   

a decrease in estimated mineral reserves; and

 

   

significant negative industry or economic trends.

 

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Although we believe the carrying values of our long-lived assets were realizable as of the balance sheet dates, future events could cause us to conclude otherwise.

 

Asset Retirement Obligation—All of our mining properties involve certain reclamation liabilities as required by the states in which they operate or by the Bureau of Land Management, or BLM. These asset retirement obligations are reviewed and updated at least annually with resultant changes in balances recorded as adjustments to the related assets and liabilities. Changes in estimates follow from changes in estimated probabilities, amounts, refinements in scope, technological developments and timing of the settlement of the asset retirement obligation, as well as changes in the legal requirements of an obligation. The estimates of amounts to be spent are subject to considerable uncertainty and long timeframes. Changes in these estimates could have a material impact on our results of operations and financial position.

 

Income Taxes—Before completion of this offering, Intrepid Mining will continue operating as a limited liability company, which does not pay federal or state income taxes. Intrepid Mining’s taxable income or loss has been included in the state and federal tax returns of its members.

 

The newly formed holding company, Intrepid Potash, Inc. will be subject to income taxes. Intrepid Potash will adopt Financial Accounting Standard, or FAS, 109, Accounting for Income Taxes, which requires an asset and liability approach for financial accounting and reporting of income taxes. Intrepid Potash will also adopt FASB Interpretation Number 48, or FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement Number 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or one expected to be taken. Intrepid Potash is currently evaluating the impact of adopting these pronouncements.

 

Financial Instruments—We use debt financing with variable interest rates, and we use significant volumes of natural gas purchased at variable rates. We enter into financial contracts to manage a portion of the costs for anticipated but not yet committed transactions when such transactions are probable and the significant characteristics and expected timing are identified. The value of these derivatives is estimated monthly based on fair market values and any change in fair market value is recorded in our income statement. Changes in these estimates could have a material impact on our results of operations and financial position.

 

Recent Accounting Pronouncements

 

FASB Interpretation Number 48, or FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FIN 109

 

In June 2006, the Financial Accounting Standards Board, or FASB, issued FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement Number 109, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The provisions of FIN 48 are effective for fiscal year 2007. Under our previous limited liability company structure, FIN 48 would not have an impact on our consolidated financial statements; however, because it is a corporation, the impact of FIN 48 on Intrepid Potash will need to be determined.

 

SFAS 157, Fair Value Measurements

 

In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurement. Where applicable, this statement simplifies and codifies fair value related guidance previously issued within GAAP. SFAS 157 is effective for fiscal year 2008. We are currently evaluating the impact of the adoption of SFAS 157 on our consolidated financial statements.

 

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SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities

 

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure certain financial assets and liabilities at fair value. SFAS 159 is effective for years beginning after November 15, 2007. We have not determined whether we will adopt the fair value option permitted by SFAS 159.

 

Quantitative and Qualitative Disclosures about Market Risks

 

Our operations may be impacted by commodity prices, geographic concentration, changes in interest rates and foreign currency exchange rates.

 

Commodity Prices

 

Potash and langbeinite, our principal products, are commodities, but are not traded on any commodity exchange. As such, direct hedging of the prices for future production cannot be undertaken. We also have not entered into long-term sales contracts with customers, so prices will vary with the transaction and individual bids received. Our potash is marketed for sale into three primary markets: the agricultural market as a fertilizer, the industrial market as a component in drilling fluids for oil and gas exploration and the animal feed market as a nutrient. Prices will vary based upon the demand from these different markets.

 

Our net sales and profitability are determined principally by the price of potash and, to a lesser extent, by the price of natural gas and other commodities used in the production of potash. The price of potash is influenced by agricultural demand and the prices of agricultural commodities. Decreases in agricultural demand or agricultural commodity prices could reduce our agricultural potash sales. If natural gas and oil prices were to decline enough to result in a reduction in drilling activity, our industrial potash sales would decline.

 

Our costs and capital investments are subject to market movements in other commodities such as natural gas, steel and chemicals. We may enter into derivative contracts for a portion of its expected natural gas usage under our existing senior credit facility, but we do not anticipate this occurring in 2008. We remain subject to market movements in the price of natural gas and other commodities.

 

Geographic Concentration

 

We primarily sell potash into regional markets that include agricultural areas west of the Mississippi River, oil and gas exploration areas in the Rocky Mountains and the Permian Basin and feedlots in Texas and other southwestern and western states. Our potash business has a geographic concentration in the western U.S. and is, therefore, affected by weather and other conditions in this region.

 

Interest Rate Fluctuations

 

We have fixed, through the use of derivatives, a portion of our floating interest rate exposure on anticipated debt through the end of 2012. Notional amounts for which the rate has been fixed as of September 30, 2007 range between $22.8 million for the year 2012 to $52.3 million for the two months ended March 1, 2010. Our existing senior credit facility requires us to fix a portion of our interest rate exposure through the use of derivatives. The weighted average notional amount outstanding as of September 30, 2007 and the weighted average 3-month LIBOR rate locked-in via these derivatives are $34.7 million and 5.05%. The interest rate paid under our existing senior credit facility varies both with the change in the 3-month LIBOR rate and with our leverage ratio.

 

Based on the principal outstanding under our existing senior credit facility as of September 30, 2007, a 1% change in interest rates would increase our annual interest expense by $0.9 million.

 

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Foreign Currency Exchange Rates

 

We typically have low balances of accounts receivable denominated in Canadian dollars and, as a result, we have minimal direct foreign exchange risk. There is an indirect foreign exchange risk as described below.

 

The U.S. imports the majority of its potash from Canada and Russia. As the Canadian dollar, or the looney, and the Russian ruble strengthen in comparison to the U.S. dollar, foreign suppliers realize a smaller margin in their local currencies unless they increase their nominal U.S. dollar prices. In 2006, the looney and ruble strengthened to 87 cents and 3.65 cents, respectively, compared to the U.S. dollar. As of December 14, 2007, the looney and ruble were trading at 98.58 cents and 4.09 cents, respectively, against the U.S. dollar. The continued strengthening of the looney and ruble thus tend to support higher U.S. potash prices, as Canadian and Russian potash producers attempt to maintain their margins, which has contributed to pricing strength. However, if the looney and ruble were to weaken in comparison to the U.S. dollar, foreign competitors may choose to lower prices significantly to increase sales volumes. A decrease in the net realized sales price of our potash would adversely affect our operating results.

 

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THE FORMATION TRANSACTIONS

 

Intrepid Potash is a Delaware corporation that was formed on November 19, 2007 and is a wholly-owned subsidiary of Intrepid Mining. Intrepid Mining has conducted no business or activities except in connection with this offering and the formation transactions. In connection with this offering, we will enter into the following formation transactions:

 

At or before the completion of this offering, Intrepid Potash and Intrepid Mining will enter into an exchange agreement, which will provide for the assignment of all of Intrepid Mining’s assets other than cash, comprised primarily of membership interests in six wholly-owned Delaware limited liability companies including our operating subsidiaries, to Intrepid Potash in exchange for:

 

   

cash in an amount of $             (approximately     % of the net proceeds from this offering);

 

   

             shares of common stock of Intrepid Potash; and

 

   

the assumption by Intrepid Potash of $             million of Intrepid Mining’s liability under its existing senior credit facility and all other existing liabilities of Intrepid Mining.

 

The transactions provided for in the exchange agreement and this offering will be consummated simultaneously. The foregoing dollar and share figures assume in all cases that the underwriters’ option to purchase additional shares of common stock is not exercised.

 

As a part of the formation transactions, we will declare a dividend with respect to the 1,000 shares of our common stock currently issued and outstanding, which we refer to in this prospectus as the “formation distribution”. The formation distribution will be paid in              shares of our common stock; provided, however, that for each share of our common stock purchased by the underwriters pursuant to their over-allotment option, the number of shares payable pursuant to the formation distribution will be reduced, one-for-one, and in lieu of such shares, we will pay cash in an amount equal to the net proceeds, before offering expenses but after underwriting discounts and commissions, we receive from the exercise of the underwriters’ over-allotment option. The formation distribution will be payable to Intrepid Mining, the holder of record of the common stock prior to this offering, upon the earlier of the expiration of the underwriters’ over-allotment option period or the exercise of the over-allotment option.

 

Concurrently with the completion of this offering, we intend to enter into an amendment to our existing senior credit facility to substitute Intrepid Potash as the borrower under the credit facility and release Intrepid Mining from the credit facility. The $             million of Intrepid Mining’s liability under its existing senior credit facility that is not assumed by Intrepid Potash pursuant to the terms of the exchange agreement will be repaid by Intrepid Mining from the net proceeds received from Intrepid Potash pursuant to the terms of the exchange agreement.

 

After the completion of the offering, Intrepid Mining will satisfy its liabilities, liquidate and distribute its remaining assets, including the cash and common stock received pursuant to the exchange agreement and the right to receive the formation distribution described above, to the current members of Intrepid Mining.

 

Once this offering and the related formation transactions are completed, assuming the underwriters do not exercise any portion of their option to purchase additional shares, the common stock of Intrepid Potash will be held as follows:

 

   

    % by public stockholders;

 

   

    % by Harvey Operating and Production Company, a Colorado corporation, which we refer to as HOPCO, wholly-owned by Hugh E. Harvey, Jr., our Executive Vice President of Technology and one of our directors;

 

   

    % by Intrepid Production Corporation, a Colorado corporation, which we refer to as IPC, wholly-owned by Robert P. Jornayvaz III, our Chairman of the Board and Chief Executive Officer; and

 

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    % by Potash Acquisition, LLC, a Delaware limited liability company, which we refer to as PAL, the largest beneficial owner of which is Platte River Ventures I, L.P., a Delaware limited partnership. One of our directors, J. Landis Martin, is the managing member of Platte River Ventures I, L.P.’s general partner, PRV Investors I, LLC, a Delaware limited liability company.

 

The following diagram depicts our current organizational structure as of the date of this prospectus:

 

LOGO

 

 

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The following diagram depicts our organizational structure after giving effect to this offering and the related formation transactions, assuming that the underwriters do not exercise any portion of their option to purchase additional shares of common stock to cover over-allotments (and, therefore, that              shares will be distributed to the current members of Intrepid Mining pursuant to the formation distribution):

 

LOGO

 

Transition Services Agreement

 

In connection with the completion of this offering, we intend to enter into a transition services agreement with Intrepid Oil & Gas, LLC, or IOG, an entity owned by Messrs. Jornayvaz and Harvey. Pursuant to this agreement, IOG, on a limited basis, may require specified employees of Intrepid Potash or its subsidiaries (other than Messrs. Jornayvaz and Harvey) to provide accounting, land title and engineering services in connection with IOG’s oil and gas venture. Under the prior arrangement with IOG, beginning in 2007, IOG reimbursed Intrepid Mining for actual time and expenses incurred on IOG’s behalf. Costs and expenses incurred during the nine months ended September 30, 2007 were $0.2 million.

 

IOG will be obligated to pay us a monthly fee and reimburse us for and in connection with the use of our services, in an amount equal to the sum of:

 

   

the number of hours our employees spent performing services under the agreement for such month, multiplied by a cost per hour for each employee, which will take into account gross wages, salaries, bonuses, incentive compensation and payroll taxes of such employee, employee benefit plans attributable to such employee and other benefits directly attributable to such employee, plus

 

   

all reasonably documented out-of-pocket costs and expenses incurred by us during such month.

 

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The transition services agreement will limit the aggregate time spent by any employee of Intrepid Potash or its subsidiaries on projects under the agreement to 15%. This limit may only be exceeded with the prior approval of our board of directors.

 

In addition, the transition services agreement will provide that IOG is permitted, at its own expense, to drill an oil and gas well at an agreed location near the Moab Mine. Any costs we incur in connection with the well will be reimbursable costs under the agreement. If IOG determines in its sole discretion that the well is noncommercial for oil and gas production, and we agree that the well is suitable for conversion to potash production, we will agree to buy the well from IOG for a specified amount. IOG will agree to indemnify us for any damage to the Moab Mine that is caused by the drilling of the well.

 

The transition services agreement will have a one-year term and may be terminated by IOG at any time on 30 days’ prior written notice.

 

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POTASH INDUSTRY OVERVIEW

 

We obtained the information in this prospectus about the fertilizer industry from several independent outside sources, including: British Sulphur Consultants, or British Sulphur, a fertilizer and chemicals industries consultant; Commodity Information Systems, Inc., or CIS, a commodities trading advisor; Green Markets Fertilizer Market Intelligence Weekly, or Green Markets, a fertilizer industry news publication; the Food and Agriculture Organization of the United Nations, or the FAO; Fertecon Limited, or Fertecon, a fertilizer industry consultant; the International Fertilizer Industry Association, or the IFA, a not-for-profit organization representing the global fertilizer industry; Integer Research Limited, or Integer, an information services provider and consultant in fertilizers and other commodity industries; the International Plant Nutrition Institute, or IPNI, a not-for-profit organization dedicated to responsible management of plant nutrients; Potash Corporation of Saskatchewan Inc., or PCS; SRI Consulting, a division of Access Intelligence LLC, or SRI Consulting, a research service for the global chemical industry; The Fertilizer Institute, or TFI, a trade association representing the fertilizer industry; the United States Department of Agriculture, or the USDA; and the United States Geological Survey, or the USGS. We also obtained some of the information in this prospectus from the public filings of our peer companies.

 

Overview of Fertilizers

 

Fertilizers play a fundamental role in global agriculture by replacing the nutrients that crops remove from the soil, thereby sustaining the yield and quality of crops. Nitrogen, phosphate and potassium (potash) are the three nutrients essential to crop development. According to the IFA, global consumption of these three principal crop nutrients in the 2006/2007 fertilizer year (the twelve months ended June 30, 2007) was approximately 181 million nutrient tons—108 million tons of nitrogen, or N (60%), 43 million tons of phosphate, or P2O5 (24%), and 30 million tons of potash, or K2O (16%). Over time, these relative percentages have remained fairly consistent. Fertilizer for commercial agriculture is the primary use of these nutrients, accounting for approximately 94% of total global consumption in 2005, according to the FAO. The balance was used primarily in industrial applications and livestock feed. Growers of the major commodity crops are the largest consumers of fertilizer in the U.S., where in 2006 approximately two-thirds of agricultural fertilizer was used to grow corn, wheat, soybeans and cotton. Industrial uses of fertilizer nutrients include the production of resins, plastics, synthetic fibers, drilling fluids, explosives and detergents.

 

Global fertilizer demand is driven primarily by population growth and changes in dietary habits, which determine global demand for food. As populations grow, more food is required from decreasing arable land per capita, which requires higher crop yields and, therefore, more plant nutrients. Developed countries use fertilizer more intensively than developing countries, but sustained economic growth in the developing world is changing patterns of fertilizer use. As incomes have grown, particularly in the developing world, people have demanded a more nutritious, protein-rich diet, primarily through increased meat consumption. Producing meat from livestock requires large amounts of grain and the fertilizer used to grow it. In addition to these historical drivers, high oil prices and associated energy concerns have recently placed a renewed emphasis on ethanol and bio-diesel production, which currently rely on agricultural products as feedstocks.

 

To meet the needs of the food and biofuel markets, the FAO estimates that world grain demand will grow 2.1% in the 2007/2008 fertilizer year, which despite expected record crops in some commodities, will cause grain inventories, or stocks, to remain at historic lows. CIS forecasts that global markets for corn, soybeans and wheat will remain extremely tight as foreign markets look not only to meet their populations’ increasing demand but also to rebuild reserves which have recently fallen to unsustainable levels. For example, according to CIS, foreign stocks of corn have fallen by 60% this year. Additionally, CIS expects U.S. ending corn stocks to be the lowest in ten years by 2009, even when assuming increased planted acreage and yields in the 2007/2008 fertilizer year. These agricultural market conditions and record price levels make the use of fertilizer more economically attractive and, therefore, support fertilizer demand growth. Intrepid Potash believes the significant world demand is best illustrated by the continuing reduction in world grain stocks despite record grain production.

 

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Source: USDA

 

Fertilizer Inputs

 

Each of the three key nutrients serves a different vital function in plant formation, and a proper balance of the three nutrients is necessary to maximize the fertilizer’s effectiveness. These functions cannot be carried out by other nutrients.

 

Potash helps regulate plants’ physiological functions and improves plant durability, providing crops with protection from drought, disease, weeds, parasites and cold weather. Potash currently has no practical substitute as a potassium fertilizer source. Potash is mined either from underground mines or, less frequently, from naturally occurring surface or sub-surface brines. Unlike nitrogen and phosphate, potash does not require additional chemical conversion to be used as a plant nutrient. Naturally occurring, economically recoverable deposits of potash are scarce, deep and geographically concentrated. Virtually all of the world’s potash is currently extracted from twenty commercial deposits located in twelve countries. This scarcity has resulted in a high degree of concentration among the leading producers and higher profitability with relatively low volatility.

 

Nitrogen has the most visible impact on yield because it promotes protein formation. The primary input for producing nitrogen fertilizer is natural gas, which typically represents 70% to 90% of the cost to make ammonia, according to TFI. Barriers to entering the nitrogen fertilizer business are low as widespread natural gas deposits allow many countries to produce the two most common nitrogen fertilizer products—ammonia and urea—for the domestic and international markets. Currently, approximately 68 countries produce ammonia and 55 countries produce urea, according to the IFA. Ammonia and other nitrogen fertilizers have historically been the subject of volatile product and natural gas input pricing, contributing to significant swings in profitability.

 

Phosphate plays a key role in the photosynthesis process (i.e., the production, transportation and accumulation of sugars in the plant). Phosphate is also involved in seed germination and helps plants use water efficiently. The principal mineral used in the production of phosphate fertilizers is phosphate rock, which is processed using sulfuric acid and ammonia. The primary phosphate fertilizer products are diammonium phosphate (DAP), which has a phosphate content of 46% and a nitrogen content of 18%, and monoammonium phosphate (MAP), which has a phosphate content of 52% and a nitrogen content of 11%. The leading producing

 

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regions of phosphate fertilizers are the U.S., China, Morocco and Russia, primarily because they contain the leading global deposits of phosphate rock. Markets for phosphate products are highly competitive and industry producers have endured protracted periods of low profitability due to excess supply and high and volatile input costs, including natural gas for ammonia. For example, after China, India and Australia overbuilt capacity in the late 1990s and early 2000s, a number of U.S. phosphate producers declared bankruptcy, and several plants were permanently closed.

 

Market Structure for Key Fertilizer Nutrients

 

    

Potash

  

Nitrogen

 

Phosphate

Number of Producing Countries

   12    68   42

Key Inputs

   potash ore    natural gas (for ammonia)   phosphate rock sulfuric acid ammonia

Market Share of Top 5 Producers(1)

  

 

67.3%

  

 

12.5% ammonia

38.8% urea

 

 

40.8% phosphoric acid 49.2% phosphate rock

Percent of Production Government Controlled

   19%    57%   47%

Industry Nameplate Capacity Operating Rate

  

 

85%

(93% effective capacity)(2)

  

 

86% ammonia

89% urea

 

 

81% phosphoric acid 82% phosphate rock

Time for Greenfield

   5–7 years    2–3 years   3–4 years

Estimated Cost for Greenfield(3)

  

$2.5 billion for

2.2 million tons

  

$700 million for

1.1 million tons

 

$1.3 billion for

1.1 million tons


  (1)   Potash percentage represents first half of 2007, nitrogen and phosphate percentages represent 2005 figures from Integer.
  (2)   Estimated by Intrepid Potash from historic production. See “—Potash—Capacity Utilization” below for a discussion of nameplate and effective capacity.
  (3)   Does not include infrastructure outside the plant gates (e.g. rail lines, paved roads, gas, water and electricity).

Source: IFA, Fertecon, British Sulphur, PCS, Integer, Intrepid Potash

 

Potash

 

The term potash arose from the traditional practice of producing potassium carbonate, needed for making soap, by the leaching of wood ashes in large iron pots. Potash is now used to describe a wide variety of compounds valued primarily for their potassium content, which is commonly measured in K2O units. The most concentrated and commonly available form of potash is potassium chloride (KCl—muriate of potash or MOP), which is between 60-62% K2O by weight and accounts for approximately 95% of total fertilizer use of K2O. Secondary forms of potash include sulfate of potash magnesia, also known as langbeinite (22% K2O), potassium sulfate (50% K2O) and potassium nitrate (44% K2O).

 

According to the IFA, 95% of all potash produced is used as a fertilizer, most of it in the form of MOP. Nonfertilizer uses of potash include chemical and pharmaceutical products, drilling fluid additive during oil and gas exploration, animal feed, detergents, glass and ceramics, textiles and dyes.

 

Mining and Production of Potash

 

Economically recoverable potash reserves occur naturally in rare, but large buried evaporite deposits, created when ancient seas evaporated, or less frequently in salt lakes such as the Dead Sea and Great Salt Lake. Because potash occurs in concentrated, soluble forms in nature, most ores are mined and refined by direct physical means, with chemical conversion used only for specialty products. Potash is extracted from underground

 

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deposits either by direct physical mining or by dissolving the potash in place in a process called solution mining. The extraction method for potash depends on the composition, depth and uniformity of the ore. Potash ore that is physically mined is traditionally hoisted to the surface for potash recovery. In the solution mining process, brine is pumped into the ground, allowed to saturate with potash and then pumped back to the surface for potash recovery.

 

The recovery of potash from ore is capital-intensive and requires specialized knowledge. The two most common methods of potash recovery are flotation and crystallization. Once potash recovery is complete, the potash is dried and is often compacted to form a granular product desirable for agricultural applications.

 

Demand Fundamentals of Potash

 

The agricultural cycle of growing and harvesting crops depletes soil of potassium, nitrogen and phosphate, which should be reapplied in consistent ratios. As a result, potash demand depends primarily on the demand for fertilizer, which is based on the total planted acreage, crop mix, fertilizer application rates, crop yields and farm income. Each of these factors is affected by current and projected grain stocks and prices, agricultural policies, improvements in agronomic efficiency, fertilizer application rates and weather.

 

From 1962 to 2007, global consumption of potash as a fertilizer grew at a rate of 2.5% per year, from approximately 10 million nutrient tons to approximately 30 million nutrient tons, according to the IFA. The only significant downturn in global potash demand since 1962 was in the late 1980s and early 1990s when the collapse of the Soviet Union resulted in a dramatic drop in consumption there and in Eastern Europe. Excluding the former Soviet Union, or FSU, world consumption of potash grew at an annual rate of 2.8% since 1962, 3.2% since 1993 and 3.6% since 2000. If global potash consumption grows at an average rate of 3.2% per year from 2007 to 2011, as estimated by Fertecon, an average of 1.2 million additional tons of K2O will be required every year by potash consumers and capacity additions will be needed to meet this future demand.

 

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Source: IFA

 

While developed countries have traditionally been the largest consumers of potash, developing countries are the fastest growing markets for potash. Over the next five years, Fertecon estimates that potash fertilizer consumption will grow at an average rate of 5.7%, 5.9% and 3.0% per year in Brazil, India and China,

 

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respectively. Population growth combined with income growth in the developing world is producing high levels of potash demand. As incomes grow, people demand a more nutritious, protein-rich diet, primarily through increased meat consumption. This creates demand for potash fertilizers to grow grain for animal feed. From 1991 to 2004, meat production more than doubled in China and Brazil and increased 55% in India, according to the FAO. Over the same period, grain production increased 69%, 19% and 6% in Brazil, India and China, respectively. Also driving demand in the developing world is increased recognition of fertilizer’s benefits. For example, the Chinese government actively promotes its use and sets the goal of being self-sufficient in grain production, which according to IPNI, would require an increase in potash consumption from the 8.9 million tons consumed in 2005 to 15.5 million tons of potash consumption in 2010 and 19.2 million tons in 2015. IPNI also reports that India is currently depleting its soil of nutrients, especially potassium, because farmers are not replacing the nutrients consumed by crops with sufficient levels of fertilizer use. The biofuels industry has further added to global potash demand because it increases demand for feedstock crops, which require a higher ratio of potash than other crops. Increasingly, corn in the U.S., sugar cane in Brazil and palm oil in Indonesia and Malaysia are being used for the production of biofuels.

 

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Source: Fertecon

 

Over 120 countries use potash, but only twelve countries produce nearly all of the world’s supply, making much of the world dependent upon imports to satisfy their potash requirements. According to the IFA, 79% of potash produced was traded across borders in 2006. With its highly developed agricultural economy and limited domestic production capability, the U.S. is the second largest consumer of potash globally, representing 17.9% of total estimated consumption for 2007, as reported by Fertecon. According to Fertecon, in 2006 the U.S. was the largest importer of potash in the world, importing approximately 80% of its potash requirements. Approximately 90% of U.S. potash imports come from Canada, with the remainder primarily coming from Belarus and Russia, according to the USGS. The high level of potash consumption in the U.S. is in large part due to its extensive cultivation of commodity crops such as corn, wheat and soybeans. Increasing global production and use of ethanol further supports fertilizer demand, especially in the U.S., where ethanol is derived from corn.

 

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Source: Fertecon

 

According to SRI Consulting, approximately 10% of U.S. potash consumption was used in the production of potassium chemicals for industrial markets. Industrial applications for potassium chloride include the production of potassium hydroxide, which is used in the production of other potassium chemicals; the production of potassium carbonate, which is primarily used for specialty glasses for cathode-ray tubes and as a component in dry-chemical fire extinguishers; leavening agents; and as a pharmaceutical ingredient. Potassium chloride is also used in the oil and gas industry as a drilling fluid additive. The amount of potassium chloride used in the oil and gas industry is related to the prevailing drilling rig count. The number of oil rigs in the U.S. has more than doubled since 2002, according to Baker Hughes. Alternative products that have some of the clay-inhibiting properties of potash in oil and gas drilling fluids are commercially available. Other industrial applications of potassium chloride include use as a flux in secondary aluminum processing, as a potassium supplement in animal feeds, and in ceramics, textiles and dyes. From 1990 to 2005, U.S. industrial consumption of potash grew at a rate of 5.1% per year, from 450,000 tons to 943,000 tons, according to SRI Consulting. Most industrial applications use standard 60% K2O grade potash, with 62% product grade required for some applications.

 

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Source: SRI Consulting

 

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Supply Fundamentals of Potash

 

The supply of potash fertilizers is influenced by a broad range of factors including available capacity and achievable operating rates; mining, production and freight costs; government policies and global trade. Barriers to adding new potash production are significant because economically recoverable potash deposits with the appropriate geologic conditions occur rarely. Virtually all of the world’s potash is currently extracted from twenty commercial deposits located in twelve countries. According to the IFA, in the first half of 2007, six of these countries (Canada, Russia, Belarus, Germany, Israel and Jordan) accounted for approximately 87% of the world’s aggregate potash production. Canada alone contains approximately one-half of the world’s known reserves as of 2007, according to the USGS, the vast majority of which are located in the province of Saskatchewan. This scarcity has resulted in a high degree of concentration among the leading producers. As depicted in the table below, the top seven potash producers controlled approximately 84% of world potash production in the first half of 2007. Five of the top ten producers are further concentrated into two marketing groups: Canpotex, which represents the three Canadian producers (PCS, Mosaic and Agrium), and BPC, which represents a Belarusian producer (Belaruskali) and a Russian producer (Uralkali). Together, Canpotex and BPC controlled approximately 58% of global potash production in the first half of 2007. Additionally, PCS markets Intrepid Potash’s product outside North America and has equity ownership positions in a number of the leading independent potash companies: Arab Potash Company (Jordan) (26%), Sociedad Quimica y Minera de Chile (32%), Sinofert Holdings Limited (China) (19%) and Israel Chemicals Ltd. (10%).

 

In the U.S., three producers account for 100% of potash production. Intrepid Potash is the largest producer, with Mosaic representing most of the remainder of domestic production. U.S. potash reserves are concentrated in the southwestern U.S. and account for approximately 4% of world production, according to Fertecon. Intrepid Potash has estimated annual nameplate capacity of 726,000 K2O tons and estimated annual effective capacity of 635,000 K2O tons of potash and langbeinite. As reported by Fertecon, Mosaic’s U.S. production has estimated annual nameplate capacity of 625,000 K2O tons. Intrepid Potash estimates that Mosaic’s U.S. production has annual effective capacity of 553,000 K2O tons of potash and langbeinite.

 

Supplier Structure of Global Potash Market (000’s of K2O tons)

One product ton of potash equals approximately 0.61 tons of K2O

 

Producer

  

Primary

Production Region

   2006
Production
   Percent of
World
Total
    January to
June 2007
Production
   Percent of
World
Total
 

Canpotex

             

PCS

   Canada    4,719    14.1 %   3,347    17.2 %

Mosaic(1)

   Canada    4,482    13.4 %   2,658    13.7 %

Agrium

   Canada    813    2.4 %   584    3.0 %
                         
      10,014    29.9 %   6,589    33.9 %
                         

BPC

             

Belaruskali

   Belarus    5,161    15.5 %   3,002    15.5 %

Uralkali

   Russia    2,920    8.7 %   1,645    8.5 %
                         
      8,081    24.2 %   4,647    24.0 %
                         

Kali und Salz

   Germany    4,052    12.1 %   2,124    10.9 %

Silvinit

   Russia    3,495    10.5 %   1,930    9.9 %

Israel Chemicals Ltd.(2)

   Dead Sea, Spain, UK    3,351    10.0 %   1,609    8.3 %

People’s Republic of China

   China    1,762    5.3 %   1,102    5.7 %

Arab Potash Company(2)

   Dead Sea    1,142    3.4 %   636    3.3 %

Intrepid Potash(3)

   U.S.    475    1.4 %   276    1.4 %

Sociedad Quimica y Minera de Chile(2)

   Chile    419    1.3 %   222    1.1 %

Companhia Vale do Rio Doce

   Brazil    475    1.4 %   207    1.1 %

Compass Minerals(4)

   U.S.    135    0.4 %   79    0.4 %
                         
      33,401    100 %   19,421    100 %
                         

 

(footnotes on following page)

 

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  (1)   First half of 2007 figures are for December 2006 through May 2007. Full year 2006 is for December 2005 to November 2006. Mosaic’s fiscal year ends on May 31.
  (2)   PCS has an ownership stake.
  (3)   PCS markets Intrepid Potash’s products outside North America.
  (4)   Compass Minerals produces potassium sulfate (SOP), which does not compete directly with MOP. Compass Minerals’ SOP is produced both directly and by reprocessing MOP purchased from other producers. Intrepid Potash’s estimate of such reprocessed production is excluded from the figures for Compass Minerals. In 2006, Compass Minerals purchased 88,000 tons of MOP, all of which is assumed to have been reprocessed into SOP. The 2007 figures assume the same percentage of reprocessing as 2006.

Source: Public filings and select country data from IFA

 

In addition to the scarcity of economic deposits, another significant barrier to entry into the potash business is the location of the world’s currently identified and unexploited potash reserves. A large portion of such reserves resides in politically unstable and/or remote locations such as the Congo, Ethiopia, Laos, Russia, Thailand, Uzbekistan and the Rio Colorado region of Argentina, where it would be very costly to build the infrastructure necessary to develop a new mine, such as electricity, water and links to rail transportation. In some cases, appropriate infrastructure, such as deep sea ports to allow shipment of potash to consuming regions, may be impractical to construct. Another barrier to entry is the long lead time necessary to develop and construct a new mine, which adds to the development costs for a new potash mine, especially in currently unexploited regions where ore bodies tend to be much deeper than the reserves that are currently being mined. Globally, the most recently constructed operating mine in the world is Uralkali’s Berezniki 4 mine in Russia, which opened in 1987.

 

The delivered cost of potash often includes a significant transportation cost component. Accordingly, producers seek markets located closer to their production sites (e.g., Saskatchewan producers serving Canada and the midwestern U.S., New Brunswick producers serving the U.S. eastern seaboard, and New Mexico and Utah producers serving the southern and western U.S.).

 

Capacity Utilization

 

Intrepid Potash believes significant differences exist between the nameplate and effective capacities of potash producers. Nameplate capacity, as reported by industry consultants such as Fertecon and the IFA, is typically the maximum achievable production the potash mill can achieve assuming there is enough ore of a specified grade to maximize the processing rate. Nameplate capacities have not typically been adjusted over time in the potash industry to give effect to the depletion of ore resulting in lower ore grades to mills, losses in productivity that can result as facilities mature, or adverse events that materially reduce the amount of feed available to the mill. Intrepid Potash estimates the effective capacity for potash facilities as the amount of potash production a facility can achieve based on the amount and quality of ore that can currently be mined, milled and/or processed assuming no modifications to the system and a normal amount of scheduled down-time.

 

In 2005 and 2007, Intrepid Potash believes that global potash demand exceeded supply, which spurred suppliers to produce at their highest achievable rates and draw down inventories. Based on the chart below, North American inventory levels have been in decline since 1995. IPNI reports that North American inventory levels for the twelve months ended October 31, 2007 are 26% below the average for the last twenty years and that October 2007 levels are 53% below the average for October over the last twenty years. Based on significant potash demand, increasing prices and inventory reduction which occurred throughout 2005 and 2007, Intrepid Potash believes that the production rates achieved during those periods are most reflective of the industry’s effective capacity rates. Intrepid Potash estimates that the industry produced at 92% and 93%, respectively, of effective capacity, compared to 86% and 85%, respectively, of nameplate capacity, as reported by Fertecon. Because production at 100% of capacity is impossible to attain for prolonged periods due to routine maintenance, equipment failures, adverse weather events, changes in ore quality and other factors, Intrepid Potash believes that the 2005 and 2007 effective capacities may represent the highest achievable production rates for the potash industry, absent additional major capital spending.

 

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Source: IFA, Fertecon, Intrepid Potash

 

Capacity Challenges and Expansions

 

The risk of flooding at key potash mines around the world is an ongoing challenge for their owners. For example, Uralkali has suffered the permanent loss of two of its four mines in the last 21 years. One of the consequences of the most recent flood, at the Berezniki Mine 1 in October 2006, was the formation of a sinkhole above the mine. This sinkhole temporarily threatened delivery of additional supply from the Russian producer Silvinit, according to an announcement by Silvinit on October 29, 2007. Additional potash mines that have flooded include PCS’ mine at Patience Lake, Saskatchewan, Canada (since converted to a solution mine); Potacan Mining Co.’s mine near Sussex, New Brunswick, Canada; and the Holle mine in the Congo. Numerous other potash mines are currently experiencing water inflows, which create operational challenges but do not necessarily mean the mine will flood. Those mines include PCS’ Sussex, New Brunswick mine and Mosaic’s Esterhazy, Saskatchewan mine, the world’s largest potash mine. In the over 75-year history of potash operations in Carlsbad, New Mexico, no mine floods have occurred.

 

A decline in potash production is natural as a mine matures. As a potash mine ages, the extraction point where ore is extracted moves further away from the shaft. This requires longer conveyor belt distances, more transfer points, longer travel times and more road maintenance, all of which contribute to lower productivity, higher costs, and greater potential for mechanical failures. As the ore body depletes, significant capital investments are needed to sustain production. Several mines have closed in the world due to depletion of the ore body, including former potash mines in France, Spain, Germany and the U.S.

 

Excluding the former Soviet Union, world consumption of potash grew 3.6% per annum between 2000 and 2007, as reported by Fertecon, which expects global potash consumption to grow approximately 3.2% per annum from 2007 to 2011. With no new operating mines constructed since 1987, and with the global potash industry believed to be operating at or near the highest achievable production rates, a number of existing potash producers have announced intentions to pursue expansions in order to keep the market from slipping into a significant supply deficit. Most recently, on November 14, 2007, PCS announced plans for a 2.2 million ton mine and mill expansion at Rocanville, Saskatchewan, which will capitalize on existing PCS infrastructure in the region. PCS

 

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currently estimates the cost of a 2.2 million ton greenfield mine at $2.5 billion, which does not include infrastructure outside the plant gates such as rail lines, paved roads, gas, water and electricity. Based on Fertecon’s demand growth expectations, and assuming normal effective capacity utilization rates and timely completion of all announced capacity expansions, Intrepid Potash believes the global potash market will remain tight through at least 2011.

 

Expected World Effective Capacity Expansions (000’s of K2 O tons)

One product ton of potash equals approximately 0.61 tons of K2O

 

     2007     2008     2009     2010     2011  

Announced Expansions(1)

          

PCS

   450     496     743     379     413  

Mosaic

   598     (85 )       217      

Agrium

   205                  

Intrepid Potash

       14     73     63     42  

Compass Minerals(2)

       25     25          

Uralkali

   (672 )   235     168     572     504  

Other FSU Producers

       154     637     132      

Arab Potash

           166     166      

China

   312     291     377     430     199  
                              

Total Announced

   893     1,130     2,189     1,959     1,158  
                              

World Effective Capacity(3)

   40,638     41,768     43,957     45,916     47,074  

Industry Operating Rate(4)

   85.0 %   85.0 %   85.0 %   85.0 %   85.0 %

World Production

   34,542     35,503     37,363     39,029     40,013  

Industry Operating Rate(4)

   92.0 %   92.0 %   92.0 %   92.0 %   92.0 %

World Production

   37,387     38,427     40,440     42,243     43,308