Intrepid Potash, Inc. (IPI) Q4 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the Intrepid Potash 2012 Fourth Quarter and Fiscal Year-end Conference Call. [Operator Instructions] I'd like to remind everyone that this conference is being recorded today, Thursday, February 14, 2013, at 8:00 a.m. Mountain Standard Time. It is my pleasure to turn the conference over to Gary Kohn, Vice President, Investor Relations. Mr. Kohn, please go ahead.

Thank you, Joe. Good morning, and thank you, all, for joining us for our Fourth Quarter 2012 Earnings Conference Call. Presenting on the call today are Bob Jornayvaz, our Chairman and -- our Executive Chairman of the Board; Dave Honeyfield, President and Chief Financial Officer; and Kelvin Feist, Senior Vice President of Sales and Marketing. Also in the room with us today are Hugh Harvey, Executive Chairman of the Board; John Mansanti, Senior Vice President of Operations; Martin Litt, Executive Vice President and General Counsel; Brian Frantz, Vice President of Finance and Chief Accounting Officer; and Ken Taylor, Vice President of Business Development & Research. During today's call, Bob will recap the fourth quarter and full year results and update you on our capital projects. Kelvin will provide insight into market conditions, and Dave will provide more color on our capital projects and our outlook. We will then open the lines for your questions. I would like to remind everyone that statements made on this call that are not historical facts or that express a belief, expectation or intention, including statements about our financial and operational outlook, are forward-looking statements within the meaning of the United States securities laws. These statements are not guarantees of future performance. A number of assumptions which we believe are reasonable were made in connection with the expectations reflected in such forward-looking statements. The forward-looking statements involve risks and uncertainties, which could cause actual results to differ from our expectations. For more information with respect to our risks -- to the risks and uncertainties and other factors which could cause the actual results to differ from our forward-looking statements, we direct you to the news release we issued yesterday and the risk factors and management's discussion and analysis of financial condition and results of operations in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, as filed with the SEC. All forward-looking statements are qualified in their entirety by such factors. Also during today's call, we will reference certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income and adjusted net income per diluted share, which we believe provide useful information to investors. Our earnings news release, which is posted on our website at intrepidpotash.com, includes reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures. I will now turn the call over to Bob.

Thanks, Gary, and welcome, everybody. We appreciate your time today and your interest in Intrepid. Intrepid is the largest producer of potash in the United States, supplying more than 9% of the country's annual consumption. Our focus remains on maximizing margins through a marketing strategy that has successfully allowed us to target the highest average net realized sales price among the North American producers by leveraging flexibility that we have built into our operations to adjust our production mix towards the highest-margin opportunities. In the fourth quarter, we achieved yet again the highest average net realized sales price and the highest average cash margin per ton of this group. This strategy is further enhanced through our capital investment program that is geared towards producing incremental tons at significantly lowered costs. In the fourth quarter, we sold 203,000 tons of potash at an average net realized sales price of $434 per ton. We produced these tons at a cash operating cost of goods sold, net of by-product credits, of $180 per ton, an improvement from $194 per ton in the fourth quarter of 2011. We reduced our costs. This success was achieved through our marketing strategy by maintaining the strong relationships with a broad customer base and by selling to diverse markets and crops. The favorable demand trend for our specialty product Trio generated an average net realized sales price of $347 per ton for the 43,000 tons we sold in the fourth quarter. This average net realized sales price is a 21% increase from the fourth quarter of 2011. Our cash cost of goods sold on these tons was $211, up from the same period in the previous years. We continue to see improvements at our East facility as we work on getting that facility up to its design. Our fourth quarter adjusted EBITDA was $41.5 million and adjusted net income was $19.7 million or $0.26 per diluted share. We generated $55.5 million in cash flow from operations in the fourth quarter, bringing the full year total to $187.8 million which is an 8% increase from 2011. In 2012, we made capital investments of $253 million and paid a special dividend of $56.5 million. We finished the year with cash, cash equivalents and short-term investments totaling $57.7 million, no debt outstanding under our unsecured $250 million revolving credit facility and the funding of our $150 million of unsecured notes scheduled for April. The special dividend reflects the confidence that we have in our progress with capital projects and our ability to deliver value from them, as well as our confidence in our people and the business. We are committed to creating shareholder value by investing in our business to increase production, profitability, cash flow and margins. Our solid financial results and robust balance sheet afford us this opportunity. The majority of the $250 million of capital investments we made during 2012 was directed towards strategic projects designed to produce incremental tons at lower costs to add flexibility to our production process and to sustain our current infrastructure and operations. By combining the solution mining and solar evaporation, we have demonstrated our ability to utilize and invest in our company to increase production while significantly lowering the cost per ton. Our results reflect this. Our HB Solar Solution mine continues to progress on all fronts. We have completed the drilling for all the injection and extraction wells, installed the pipeline required to make all of the connections, and the construction and lining of the ponds is moving forward on schedule. We have finalized an improved design for the mill, poured the footings for its foundation, and are expecting to begin erecting steel shortly. Importantly, during the fourth quarter, we began to pump brine from the mines into the first evaporation pond. This major milestone means that we are on schedule to see our first harvest late this year following the summer evaporation season and the construction of the new mill. Our HB project is not only impressive but it is also unique. We have turned an idle potash mine, a non-potable aquifer and the sun's energy into a solar solution mine capable of producing 150,000 to 200,000 tons annually at approximately 1/2 of our current average cash cost per ton, which is already in reduction. Furthermore, this environmentally friendly mining project has created a real boost to the economy in Southeast New Mexico. In Moab, another of our social solution mines, our team of geologists and drilling experts are using the latest technologies to create new horizontal mining caverns within a complex geologic structure. We have successfully completed the drilling of our second cavern system and have begun drilling the third system. We expect these additional cavern systems to be additive to 2013 production and continue to reduce our costs. The success of our drilling program and the demonstrated ability to stay in contact with the ore body during the drilling is a testament to the teamwork, technical capabilities and execution by our highly qualified staff. I'm extremely proud of and encouraged by the team and the progress they have made on these game-changing projects. Our team is focused on building shareholder value. Our strategy of optimizing production and selling into diverse crops and industries in our backyard markets remains core to our success. As we continue to improve our execution and the projects come online, we will be primed to deliver an even higher per-ton average cash margin than we do today as we continue to reduce our costs. Kelvin Feist, our Head of Marketing and Sales, is now going to provide you with some insights on the driving factors for our fourth quarter sales results as well as the favorable macro trends in the marketplace that have us feeling extremely confident about 2013.

Thanks, Bob. The full potash application season unfolded pretty much, as we were anticipating, with feedback from customers reporting healthy application rates. We sold 203,000 tons of potash during the fourth quarter. This was 20,000 tons or 11% more than we sold in the fourth quarter of 2011. Importantly, we believe this signals a favorable spring application season in North America, with solid potash application rates, positive cropping intentions and strong incentives for farmers to maximize their return per acre. The macro jet -- trends, going into the year, namely the low stocks-to-use ratios and the resulting sold commodity prices, are favorable to farmers. These strong grain commodity prices present the farmer with a promising profit outlook for this year. Just this week, the USDA said that farm income in 2013 is projected to be the highest in the last 40 years. To capture this profit's potential, farmers will look to maximize yield by adding adequate and balanced nutrients to the soil. This supports our positive outlook for positive potash consumption. Our success in the fourth quarter and into 2013 is based on a solid foundation of partnerships with our customers. Our customers continue to look for tools to reduce their risk in holding potash inventory. It's in the [ph] programs to ensure we capitalize on opportunities and are able to supply just-in-time purchases. Our flexibility has helped us broaden our customer base and our geographical footprint. The recent international potash activity, specifically the Indian and Chinese contracts, is another positive development for the potash markets. We believe that having these contracts signed and in place removes a degree of uncertainty from the marketplace. The contractual volumes in these agreements indicates that large international customers are buying again, which should keep tons moving into those markets. Our specialty product Trio was another highlight in the quarter. The existing strong demand, combined with the recognition in the market of this product's value, once again supported a favorable price trend. The average net realized sales price of Trio increased by $11 to $347 per ton in the fourth quarter, from $336 in the third quarter. We sold 43,000 tons in the fourth quarter compared to 28,000 tons a year ago, resulting in us once again being virtually sold out of granular Trio. We expect continued success with Trio in 2013 and plan to place every ton that we produce. Thanks. And I'll now turn the call to Dave.

Thanks, Kelvin. The strength of our cash flows and balance sheet allows us to invest in capital projects that will make meaningful and sustained improvements in the operating profile of Intrepid. As we look through 2013 and into 2014 and beyond, our key solar solution mining projects are expected to comprise a larger percentage of the tons we sell, with those tons being produced at significantly lower cash costs. The positive effect on our profitability from this straightforward math of incrementally lower-cash-cost tons is very compelling, and it becomes clear to see how our EBITDA growth should accelerate at an even faster pace than our sales volume growth. We plan to make capital investments during 2013 in the range of $235 million to $285 million. Our capital investment plan contemplates completing and commissioning the HB Solar Solution mine, substantially completing our North compaction plant, expanding the mining caverns in Moab and investing nearly $100 million in additional capital in various smaller-opportunity projects as well as in sustaining capital. As we complete the HB mill design and our planned initial drilling activities, we have decided to increase the investment in our HB Solar Solution mine project in order to enhance its long-term reliability, predictability and operating efficiency. We now plan to invest between $225 million and $245 million, a modest 9% increase from the midpoint of the previous range. Our plans now include augmenting our brine supply wells so that we have a more robust source of non-potable water to use for making the injectate brines and various upgrades to the mill design. As we continue to enhance the flexibility of our operations, we have designed our granulation facilities to be able to produce and sell the highest-margin products into the marketplace. Our new North compaction plant will be state-of-the-art, larger and more efficient than our existing compaction plant. We have sequenced the installation of the first, second and third compaction lines to be in service ahead of the expected production from our HB Solar Solution mine as well as the increased production from the existing West mine. This project is on budget, with $55 million invested through the end of 2012 of the estimated $95 million to $100 million budget. One of our most significant operational achievements last year was the improvement we drove at our East plant through our diligence and focus. During the Third Quarter Call, we said that we were taking the right steps, we had the right people in place and that we expect to see continued improvements in our results over time. While our production level for potash at East improved again in the fourth quarter, with a 10% sequential improvement from the third quarter. This follows the improvements we reported in the third and the second quarters. In fact, our East facility had its best production quarter since early 2011. Annualizing the fourth quarter production run rate matches our historical annual production rate from the East facility. Before concluding our prepared remarks, I want to call your attention to 3 items you should expect to see in our financials in 2013. First, we anticipate our effective tax rate to be between 36% and 38%, with cash taxes representing approximately 25% of the total tax expense. Second, we don't expect to see interest expense increase as a result of the notes that are funding in April. The majority of our interest obligations will be capitalized as part of our capital investment program. And third, as we previously disclosed, we anticipate a final settlement of the pension liability in the first half of the year. We estimate that the settlement will result in a pretax charge in the range of $1.5 million to $2.5 million. In closing, we are very pleased with the results and the progress we made in 2012. We entered 2013 confident that we are on track to meet our objective of increasing profits and cash flow as the investments we've made to produce incremental tons at lower cash costs begin to contribute to our results. The benefit from these investments are becoming very clear as we near completion and look into 2013, and we expect that these projects will contribute even more meaningfully in 2014 and beyond. We remain confident in the direction of the business and look forward to sharing with you our continued success. We'll now open the lines for any questions.

[Operator Instructions] The first question is from Mark Connelly of CLSA. Kurt Schoen - Credit Agricole Securities (USA) Inc., Research Division: This is actually Kurt Schoen for Mark. So in looking at your cost of goods sold guidance, I was hoping you could just break down the low and high end of the range, and maybe put that into perspective, how much of that is fixed cost absorption from volume, how much of that is East Mine work, how much of that is incremental HB tonnage coming on.

Sure, Kurt. I can give you a little bit of color around that. I think, when you're -- one of the things that I've observed from reading some of the notes is that I think one thing the Street seems to be missing is the impact of DD&A in total COGS. And when I look at total cash COGS on average from 2012 to 2013, I actually see that as being relatively flat. That's in the face of -- we're always going to have some salary adjustments, we've got vendors that are pushing on costs, et cetera. That being said, we are seeing an improved production. And actually, we're seeing lower cash costs at our East facility than we did in 2012. I expect that we will see things being about flat at West and at our Moab and Wendover facilities. But what that means also is we'll have more tons available from the East facility as we go through 2013. So product mix has a little bit of an impact on that. But when we're talking about costs, we're looking at seeing things stay pretty darn flat on a cash cost basis through 2013. Kurt Schoen - Credit Agricole Securities (USA) Inc., Research Division: Okay. And then what about in SG&A? I saw that go up in your forecast there, go up about 13%. Can you give any insight into that?

Yes, we've got -- in SG&A, it tends to be a fairly modest increase overall when you look at some of the additions that we've been able to make on the engineering front enhancing some of our geology and mine planning expertise. Each one of those positions, we go through a pretty careful analysis. And we're looking at how many tons we produce per employee to make sure that we're not letting that creep further than we really think is appropriate. So there's nothing in there that's too significant. And one of the pieces that I would touch on is that we've been doing a lot of our work on our core hole drilling program. And on the reserve front, one of the things certainly that you'll see today is that, in each of our areas, we've been able to extend the reserve life and increase the reserve profile of the company. And that's a pretty significant item in terms of how we think about the long-term planning for the company.

Next question is from Don Carson of Susquehanna Financial.

Just a few questions on market conditions. I mean, you referenced the India settlement and -- but I'm just wondering, have you seen any change in dealer willingness to step up and buy product? Because your comments were suggesting that there was a reluctance. So I'm just wondering how you see the direction of prices as we get into the spring, if you posted an increase for the spring season. And then just if you can comment on your level of consignment sales.

This is Bob. I'll comment first. We just got back from the TFI conference, and I would say, that conference was much more positive than we expected. We're seeing great movement, we're seeing -- we saw significant activity just in the last couple of days. We were at that conference Monday, Tuesday and Wednesday, and so here we are Thursday morning. And so we have seen significant movement in the marketplace from a volume perspective in the last just several days and hours, if you will. So what we're seeing in the market from a volume and a movement perspective and the willingness of dealers to come in and start buying, we're seeing activity there. As to pricing and what we see, we're seeing some pricing that's being taken a little bit farther out than, I would say, is typical. We're seeing some pricing into March and April and there's a couple that are even talking about taking some pricing into early May. So in terms of seeing a near-term price bump, I don't think we've got the set stage for it going into early April. However, we're seeing great movement, very solid movement, very positive movement and a very positive atmosphere that came out of the TFI conference that we all just got back from. With that, I'll turn it over to Kelvin and let him give it a little more color. Kelvin?

Sure. Yes, Don, I think, in general, all these contracts equal increased global demand. And I think, whenever you see that, it's -- we're seeing markets opening up here and more product moving to them. So I think the trend is in the right direction, and certainly, that's a positive view on our part. I think, when I think about North America, and that's really where we participate with our potash, we're hearing a lot of positive things. Whenever you're seeing the amount of seeding intentions that are out there, we're going to see more potash go on those acres. And certainly, the rates are going in the right direction as well. So from a North American perspective, we're seeing a lot of positive things, with the current commodity prices where they're at...

And just to follow up on your comment on pricing. You said some of your competitors are offering to fix prices through May. So are you seeing the Canadians still being pretty aggressive? Because obviously, they've got a lot of new capacity they got to place into the market.

Yes, I think we're seeing a competitiveness there, but I wouldn't say it's different than what we've seen in the past. I think the bigger key is the second part of your question, which was about warehousing. And we've got a number of warehouse programs out there that we've offered up, and as have the Canadians. And that's really seems to be where a lot of the attention is being placed right now.

So I'm just going to say -- okay, just to say one more comment on that. I think that there is a lot of competition on the pricing side. And I think that that's one piece that, frankly, folks need to take into account as we go through 2013. We're seeing it in the market, we're seeing that behavior being driven by the Canadians, as they have really worked very hard on each of their respective fronts to secure some space. And despite all the things that you would look at macro-wise, product movement into the international markets, farmer profitability being at -- we're talking about the highest level in 40 years, and this is on the heels of the last 4 or 5 years, you're looking at affordability. You're still seeing price be one of the major tools, frankly, that the Canadians are using, so we've got to react to that. And we're committed to continuing to produce at full rates and I think that's the right strategy for us given our backyard markets. But I think that, when I look at a lot of the first call numbers, some of those pricing numbers, frankly, feel pretty strong to me against what we're seeing in behavior by the Canadians right now.

The other thing that I would just add is, now that the Indian and Chinese contracts are settled, we're going to see a lot of standard movement from the Canadians going offshore, which is going to provide a lot of relief to a variety of our markets. And as you know, we serve a very diverse group of markets. So from our perspective, it's good news if those contracts have settled. So it's not only just volume but it's standard volume that's going to be moving off. So it's a complex market. The Canadians have -- had a lot of issues that they needed to get resolved and we saw it occur in the form of pricing. But there's a lot of really good movement that's now beginning to occur. So I don't know if that's the color you're looking for, but we try to give you as much information as we can relating to what's actually going on in the marketplace.

Just one follow-up. What are you seeing coming into New Orleans from some of the offshore competitors like the Russians and the Israelis? Has that toned down now that they've got volume moving out to China and now India?

It's the same tonnage that we see year over year over year. There is nothing new that we're seeing coming in, in terms of volumes. We're seeing the same type volumes, the same type questions, the same type issues that we've been seeing for the last several years. So we're not seeing any increased foreign tonnage that we're really feeling in the marketplace. So I would say that we're seeing a little bit of additional tonnage on the far East Coast. It's coming out of South America, but it's much more limited and site specific. And so now that we've seen these other markets open up, what we're hearing is that those tons are going to find [indiscernible]elsewhere. So when we look at the gross tonnage of foreign tons coming into the United States, it's about the same as we've always seen. We, in our core markets, just haven't felt the pressure from those foreign tonnage.

The next question is from Christopher Parkinson of Crédit Suisse. Christopher S. Parkinson - Crédit Suisse AG, Research Division: Yes. You touched on this a little bit, but can you just add a little more color on what you're hearing from your customer base based on current inventory levels and just a kind of from a demand perspective. And more specifically, are there any noticeable differences between some of your core geographies?

Sure, I'll take that one, Christopher. In terms of inventory levels, they're elevated over the -- you know what, IPI puts out some numbers, and they're elevated slightly over the 5-year average. I think what you've got to think about is both that standard and granular inventory that other folks are carrying. I think, in terms of our inventory levels, we've managed to sell more than we produced last year and that kind of was we were successful in kind of drawing down our inventory level. If we think about the field, if you will, and what's going on out there, we are seeing more people doing consignment or risk-averse programs and so that needs to be factored into that. I think you all -- we see more -- a bigger commitment in areas where the Corn Belt, if you will, versus other areas that are drier or might have some drought potential. So there's -- there are different risk levels from the farm gate and/or dealers. But I think, in general, most people are planning for a good spring. And we're probably 3 quarters full in the field right now and we're going to start seeing some activity here really soon, so things are looking positive.

I'd just remind people that people are talking about a 97-million-acre corn crop and potentially even larger, which has never occurred. I mean, I -- nobody has ever serviced that large a corn crop. And so a lot of the discussion from TFI was the logistics and the inventory that's required to service that large corn crop. Historically, over the last couple of years, we've served as something in the high 80s and in the low 90s, but something in the high 90s has never been serviced. And every farmer that we're talking to is also talking about trying to maintain their presence on the yield curve. So we're just having a lot of positive discussions about what this spring could look like with -- even if we were to get back to a 95-million-acre corn crop, we're still talking about historic levels. And so what we want to convey today is the positive discussions that took place over the last couple of days at the TFI conference about this very significant corn crop coming up and the logistics required and inventory required to service it. Christopher S. Parkinson - Crédit Suisse AG, Research Division: And just a very quick follow-up on CapEx. I understand you don't give quarterly guidance, but just as far as the distribution, do you think it's going to be -- do you have any color on just whether how much of it is going to be loaded into the first half versus the second and then also just any milestones you're really looking for over the next 6 to 12 months, from your perspective?

Chris, this is Dave. If you think about the bigger projects that are out there, certainly, HB, North, those 2 being the largest, certainly, you're going to see a higher concentration of capital investment in -- probably in Q1, Q2 and then see a little bit of a tailing on that starting in Q3. When we're looking at HB, for example, we're making great progress on the pond system but we are looking to demobilize the earthmoving equipment because we're getting near the end of that phase of the project. We still have the pond lining and the salt lay down to occur. And we're starting -- there's a lot of activity related to the mill right now. So yes, hopefully that gives a little bit of color on that. With regards to North, we anticipate seeing the first of the 3 compactor lines come online in the second quarter, sometime towards the end of that quarter. That means that the bulk of the equipment is going to be set. A lot of the dollars will certainly be in place at that time. We'll be doing some -- the buildout of the second and third line and completing that is really tied to getting electrical run, getting some of those items put in place. So you'll see the intensity of the dollars be a little bit lower. So hopefully, that gives you a little bit of sense of timing around that.

The next question is from Joel Jackson of BMO Capital Markets.

Maybe I'd first just follow up a little bit on some of your capital investment ideas. I know it's a bit early for '14, but could you give us a sense of sort of, in '14, what you'd expect on some of your opportunistic projects? And maybe also if you could talk about sort of what your maintenance capital level was in 2012 and then what it looks like in '13 and '14.

Joel, this is Dave. I'll start on the sustaining side. What we've told folks pretty consistently is that we think the right level of sustaining capital is somewhere in that $40 million to $50 million range. We certainly have a very intentional program of building reliability into the system, having predictive replacements and such. So I would just model that in as a fairly consistent piece from year to year. As we look into 2014, the larger capital projects, being HB and North, will be largely behind us. And of smaller-opportunity projects, we continue to look at the next step of recovery on the langbeinite side. We're continuing to look at expanding our West facility to increase the throughput in that area. We continue to have opportunities on the solution mining side. I think, if you remember, on the Third Quarter Call, we talked about acquiring additional leasehold in the Carlsbad area that's suitable for solution mining. So we are continuing to move those items forward. We've got a pretty intentional program internally where we look at moving each one of those projects forward. I don't see the capital investment numbers being quite where they're at for 2013 in 2014. But clearly, as we get some of these projects scoped, we'll keep the market informed and make sure that we give you a sense of the returns associated with them and the time lines with some of these activities.

And on HB, as the -- the additional CapEx, is that going to give any increased probability that you'll be able to pull out at the high end of your production range at HB, maybe 200,000 tons? And also, what of these activities.

And on HB, as the -- the additional CapEx, is that going to give any increased probability that you'll be able to pull out near the high end of your production range at HB, maybe 200,000 tons? And also, what has changed in the last few weeks that did make you increase, by about $20 million on the midpoint, the CapEx? Because you did update that it was on budget a few weeks ago.

Well, the -- what we've gone through is final mill pricing. And we made some very intentional decisions around flotation cells and around screening that frankly, we believe, are -- improve our reliability of the plant. We believe it improves the ability to bring that plant up in a manner that's very consistent with how we operate at Moab and Wendover. And then we also are making the decision to really add, and I'll call it, some buffer. But I want to make sure that we have capacity on the brine inject dates. So we're -- we've got scheduled drilling additional brine wells than -- over what we had originally planned. So I see these items as real positives and, frankly, making the plant better, leveraging off of things that we've learned over the years here and really making the right decisions that certainly give us a better chance to be successful.

I guess and I would add to that is that, as we continue to create and engineer opportunities, we're trying to build-in the opportunities of infrastructure today while we have equipment out there and on place and the capital in place to add wells so that -- when those additional opportunities present themselves and are ripe, that we've already made the investments to bring things on possibly sooner than later and be able to handle incremental volumes and achieve higher recoveries. So when -- we really improved the mill design pretty significantly and we're building-in additional flexibility with wells assuming and hoping that additional solution mining opportunities can come to fruition quicker.

And finally, you did do a $0.75 special dividend late last year. You obviously have a large capital investment program this year. Maybe you can talk about, when do you think you could be in position to maybe entertain the idea of doing a regular dividend? Is that more something in '14? Or because of the capital investment program you see, is that more of a '15 decision? And where are you comfortable in, in increasing your leverage?

Well, as we've discussed before, as we bring on lower-cost solution mining tons, which we're at Wendover, which we're doing at Moab -- sometimes we forget that Wendover is, we believe, the second lowest-cost producer in the world, just under what we believe the Chinese are spending. So we have a phenomenal asset in Wendover. We continue to improve our Moab facility, which we continue to bring its cost structure down. We continue to have success at East and bring its cost structure down as our langbeinite production goes up. West has become significantly more reliable. So as we've made the capital investments, we're seeing our facilities become more reliable. And our ability to manage our risk, through the reliability and cost structure of our facilities, has changed, and we now can rely on a cash flow stream from great to solid assets that we've invested in rather than having to rely on cash on our balance sheet. So it's a different style of risk management. Hugh and I are sitting here today, and as the 2 largest shareholders, I can tell you with a lot of confidence that, as these facilities continue to come on and continue to improve and improve sequentially quarter after quarter, we see the kind of the results that we're seeing at Wendover and Moab, are our ability and desire as large shareholders to be able to make dividends is very much in line with the rest of our shareholder base. So I can guarantee that -- as we continue to build that reliability, that we are totally aligned with our shareholders in trying to return cash to our shareholders. So I can't really give you a date on that. All I can tell you is that we're very excited with the progress that we're seeing. We're on schedule in so many of our projects. So many of our projects that had problems, we fixed them. We have, I got to tell you, one of the best engineering and technical teams in the world right now in the potash business, and it continues to show up in our results. So that's a long, long-winded answer to your question, but when the time is right, I can guarantee that, as the 2 largest shareholders sitting here, we're aligned with you and we intend to do it.

The next question is from Adam Samuelson of Goldman Sachs.

I was hoping to start maybe in Trio. And probably, you've seen the price gap on Trio relative to the potash now significantly in 2012. And your Trio price, you realized Trio price is up 41% relative to a decline in potash. I mean, maybe talk about your outlook there and kind of how much more room you have even if there is on the price gap between Trio and potash, to start?

This is Bob. Let me start with kind of a bigger picture on that. The thing that I'm most proud of about Trio was that we went out globally and we've built that market out. We've increased the market size for Trio rather than having gone out and trying to ply market share. And that's reflected of educating a market and showing a market what a great product Trio is because of the components that make it up. So the first part of understanding why we're seeing price appreciation is that we've gone out, we've spent a time with our agronomists, to travel the world, to build a market, to partner with great folks like PotashCorp and Yora [ph] internationally to educate the market as to that product and grow that product. And so I'll let Kelvin speak to more of the specifics but from a business strategy, we were always geared around building a market and not to trying to buy a market. And that's a very, very different strategy. And so as to continued strength in the market that we see pricewise, I'll let Kelvin address that.

Sure. Adam, I think there's a couple of things that we're seeing. What we always do is we -- well, first of all, years ago, I think it keeps track with the potash pricing, and I guess we worked really hard to try and separate those 2. And the reason we've been doing that is customers are seeing so much value in the magnesium today and the sulfate components today as well as the potassium component of that product. So that's the one piece as we pulled it apart and said this is a specialty product, it's not a -- it's not as near as commoditized as, say, a potash. I think the second piece is where we're trying to place that product. This product tends to go on higher-value crops, chloride-sensitive crops, specialty crops that really tend to make more margin per acre. And so we're really pushing hard to offer a product that gives them more value and allows them to sell their specialty crops for more dollars. So I think we've had real big success on that and we're going to continue to push that way. I guess, in terms of the question, it really depends on if we see strength in the sulfate market, magnesium market and the potash market. And today, we're seeing demand picking up on the potassium side, so there's no reason to think that we can't continue to keep a decent spread between those 2 products.

Okay, that's helpful. And then maybe on the production side in Trio. I mean, your production guidance for next year, I mean, up 14 to 36, in the range. I mean, your 4Q production has been -- you've, first of all, been pretty flat at these levels for a couple of quarters now. What gives you the confidence to step up kind of from the current run rates as you move through 2013?

Adam, this is Dave. When we're looking into 2013, I think you need to put it in context with the overall program around our East improvement process that has taken us in from '12 into '13. The first part of that program was really geared around the front part of that plant, which is the sylvite or potash production. And we needed to make those steps and improvements first because that ends up being feedstock into the langbeinite or Trio plant. Those improvements have started to take place in the Trio production. We've done some redesign work on the plant, we've had that. A lot of that installation work has occurred here in January, early February, and we've got a little bit more work to do. And frankly, we're seeing some improved recoveries as we move into '13 here. So I think we're going to be cautious in terms of reporting what we see coming forward. We want to make sure that we don't, frankly, put our customers in a tight spot. The conversations with you, all, on the public side are pretty easy relative to the conversations that we have to have with some of our customers. And we want to make sure that we're being very realistic in terms of what we can deliver. But that being said, as we see improvements, we'll get that information out straightaway. And I anticipate that we'll -- I feel pretty good about where we're at going forward and think that we've got a good path to get us closer to where that original design capacity was.

Okay, that's helpful. And then maybe finally for me, switching gears, just thinking about the North compaction plant. As that fully comes onstream and you get the HB solar mine up, what percentage of the total production on the potash side ultimately gets granulated? I mean, just trying to be conscious of the pricing margin impact there.

Yes, I think that maybe 2 parts to that question. One is, I think we can go through an absolute math piece. And if memory serves, Adam, and I'm thinking about our capacity, if you can mine Moab, we've got 100% capacity to compact; Wendover, we've got 100% capacity; HB and West, we'll have 100% capacity; and we're kind of around 35% to 40% capacity on potash production at East; and then we've got 100% capacity for our Trio facility. So I think the important piece there is recognizing that we have the flexibility to manage our production mix. We see various points in time where standard product is demanding a higher margin than granular product, and having the ability to adjust up or down based on what the market demands are is really what we've built into the system. So overall, directionally, what we're doing is -- the impact is so significant when you look at -- like at, Moab, for example, and the ability to manage that production level, just to afford such an opportunity to keep inventories fairly low is a starting point and make sure that we continue to move product into the market.

The other thing that I would add to that, that really is a huge piece is, it's not just the ability to compact 100% of your product, but it's now having state-of-the-art compactors producing some of the highest-quality potash, if not the highest-quality potash, in North America. So by investing the money in the compaction plants with state-of-the-art technology, giving us the ability to produce the highest-quality product, creates so many marketing opportunities in the -- and flexibility. So it's not just capacity, it's also the quality piece.

Next question comes from Bill Carroll of UBS.

When will spending on the next phase of HB kick into high gear? And how will that spend compare to the first phase? And also, any incremental permitting issues that you might encounter there?

Bill, I just want to make sure I'm understanding your question. Because when we talked about additional solution mining activities, we're really seeing that. Is that what you're describing?

Yes. Just the further buildout of HB after the first phase.

Yes, I think -- let's make sure we keep things in perspective here. A big piece of what we're doing now with HB is building the ponds, building that pond capacity and building the mill. So when we look at next stages of solar solution mining, certainly, we need to make sure we've got a great handle on what the permitting time lines look like around it. But we've built a lot of that infrastructure already. So we see the capital intensity of those projects being a lower capital intensity. At this point, we don't have -- I don't have time lines or dollars to hand you. I think what I've tried to help you understand is that we are looking at each of those opportunities very closely. We're trying to understand exactly what it will take to go through the process of them and make sure that we've got the capital estimates built out appropriately and to know that there's significant amount of opportunity there.

Yes. And let me add to that. I -- one of the things that we wanted to make very clear in our last quarterly call was that we've acquired the leases from the appropriate governmental authorities, which is the first step in being able to execute on an additional solution mining opportunity is to actually own the leases. And so we've now done that. And so now all of the appropriate next steps of internal engineering and external permitting are -- all of those discussions are taking place, and trust me that those are going to happen as quickly as we can make them happen. And as soon as we have clarity on what those time lines look like, and then we'll obviously share them with you. But the first step is obtaining the leases from the appropriate whether it's state or federal. And we've done that

What kind of effects might you guys feel both positively and negatively?

Well, it's nice being on the West side of the river, to be quite honest. When you look at where we are -- where we're located, I'll let Kelvin address that a little bit more, but being primarily on the West side of the river is a good thing.

Yes, Bill, I think that the biggest thing is we feel, like, it impacts our competitors more than it impacts us. So to me, it -- we don't do a lot of activity on the river. And because we have a diverse plan with a number of segments in the industrial, the feed and the ag; as well as a decent geographical footprint, I think those are the 2 things that really drive our business. And we tried to stay -- I won't say stay away from the river, but certainly we don't actively participate, like some of the other players. So there's probably more concern from the importers, from the phosphate folks. The importers of urea are probably the ones that will be most impacted if low levels continue.

The next question comes from Mark Gulley of BGC Partners.

Guys, I got 3 questions. I'll do them one at a time. One is on marketing, one is on accounting and one is on financial. Kelvin, you've made some positive statements about the state of the potash market. And yet if I look at the guidance for the first quarter, I think I had volumes down 8% year-over-year and the prices down, I think, about 9% year-over-year, although it's more or less flat sequentially. So how do you reconcile the mood coming out of TFI and all that with some of the numbers that you're guiding to?

Yes, well, Mark, I think the first thing, price is the price. And we're a smaller player, so we're involved in it, but certainly there's other players that tend to drive the price. So that is what it is. I think, on the demand side, what we were seeing is a change in price here recently. Warehouse pricing moved from 4 70 to 4 60 [ph] in the Midwest. And it really stopped movement for us -- or slowed movement for us. So now we're starting to see people settle into that new price range. And we're going to start seeing some shipments happening here. So it just slowed us up in January and February, and now we're seeing some activity and I think we confirmed it at TFI. So that's the positive takeaway that we saw. And I guess we were reacting to some of the slowness in January and the first part of February.

I think, just to complement those comments from Kelvin. Mark, when we looked at our average net realized sales price advantage, I think that really confirms what Kelvin's describing, and I think it confirms what we're doing. And when we look at the folks that have already reported, we realized $58 more per ton -- per short ton than our Canadian competitors. And our net margin ended up being $31 more per ton. So I think you that you have to recognize that we are going to participate in that market. We are going to, I think, perform better on a relative basis and continue to drive that net realized price advantage piece. And I'd love to tell you that seasons line up perfectly with fiscal quarter end, but as you know, we need to look across the application seasons themselves. And so that's a little bit too of what we're dealing with. It doesn't change our review on the long term over the course of the year, but it's certainly predicting that activity from month to month is sometimes a bit of a challenge.

And I would just add to that. A lot of the things that have occurred, have literally occurred, in the last few days. And so we've seen a lot of positive movements that have occurred just literally within hours and days. And so we're trying to report them as they occur in realtime.

Okay, that's helpful. Dave, an accounting question for you. As the amount of consignment sales seem to increase for you and your competitors, just remind us on the revenue recognition accounting policy for consignment shipments and/or sales.

Yes, the way -- and I cannot begin to tell you how our competitors do this, so please don't ask me to reconcile that. I know what we do and I believe it's right. To the extent we place a ton in a customer's warehouse, we still have title to that. And so it stays in our inventory and we don't recognize revenue until that product is sold out of the warehouse. If there's something where there might be a collar or something around a price, we recognize revenue only to the lowest dollar amount at the time of the quarter until that period might expire. It's not as much from a volume perspective, as you might think. A lot of that settles -- it tends to settle around quarter-ends as well for the dealers and distributors. So we don't have that much carryover from period to period, I'd say, probably less than maybe as a percentage than even some of the other producers. But we do try to be very flexible in terms of the way those programs work for each of our customers. And Kelvin and his team know our customers pretty well and what's important for them individually. And being smaller, we can be a little bit more nimbler around that and really tailor programs that we think are fair to us, as the producer, and at the same time help our customers achieve some of their goals.

I'm sort of guessing there's some gamesmanship around what you just talked about on settling quarter-end. It sounds like, if I'm a customer and I know that you would like to recognize some shipments and I think I have a price in mind, my observation would be that, that gives them some leverage.

No, I wouldn't say so because we -- I've taken a pretty clear line with the guys here that sales fall when they fall. And we're not going to get into that situation where you try to pull something forward into a quarter because, frankly, all it does is leave you with a big hole in the next one. And it's not a -- I don't think that's an effective way to manage our business.

Okay. Let me wrap up quickly, if I can, with a financial question, and maybe this is for Bob. With the cost overruns on the CapEx program and somewhat lower pricing assumptions probably for potash, how has the IRR, internal rate of return, on this overall project change from when you first approved it to maybe where you stand right now?

Well, I guess the first thing is that, when we look at "cost overruns," there's a difference when you purposely redesign a mill because you think you can enhance its recovery. The IRR doesn't necessarily go down because you've increased and improved the design. And so you've also designed it to potentially handle additional tons and you've gone from one style of flotation that's more proven from another style that was a bit more experimental. And so reliability is something we value. Product quality is something that we value. So I don't think we're going to see any degradation in the rates of return that we see from these projects because of the enhanced designs that we've chosen to go down that path. The other thing, and I'll just reiterate it on the well drilling is we mobilized, we've paid to mobilize, rigs. We have rigs out there and we believe we're going to have additional opportunities. And so while we have rigs out there, while we've paid them up [ph] and move into safety mode [ph], it's an appropriate time to drill more wells when we have the capital to go ahead and have that additional water at our disposal. So we can call them cost overruns, but I look at it in a very, very opportunistic fashion in terms of the capital that we're spending while we have capital available to us and we're working our butts off to bring some of these opportunities to fruition faster. So I guess I would put them in a different basket, if that makes sense.

Next question is from Ivan Marcuse of KeyBanc Capital Markets.

It's Andrew Dunn, on for Ivan. Just quickly, are you looking at your market share kind of staying the same in 2013 right now? Or do you anticipate that it may swing in one direction or another?

Kelvin, do you want to take that?

Sure. I think we've talked about the diversity that we're operating under, playing in that industrial market, the feed market and the ag. And I guess, based on that, we don't see a significant shift in what our customers are bringing us, and the overall market. I think there's a lot of strength in the ag side right now and we're participating there. So will we see any change in market share? I would say, it's very unlikely. We're going to move the volume that we have available. We've reduced our inventories to a much lower level. We're now selling very close to what we're producing and we plan to manage it that way. So if we see a dramatic increase in the demand in North America and we only have X amount, we will see a slight reduction in our market share. But the reality is, we're selling what we produce, and that's the key for us.

One of the items that maybe hasn't become as obvious to folks, as we would have hoped, was that we sold about 40,000 tons more product than we produced in 2012. And fortuitous as it is, we've sold that at higher net realized prices than expect or are going to be available to us here in 2013. So when folks look at trend lines and such, I think, take a look at the production line and recognize that we're going to sell what we produce and we've got a -- what I described to be kind of a pretty low inventory level. And there's not a whole lot of extra room in there because you have to maintain a certain amount of inventory level. We want to make sure we've always got inventory for our truck sales. We want to make sure that when -- if you get that unit train order, that needs to be delivered because, if the customer needs, we can fill that in the time line. So that's a piece that hopefully folks can grab a hold of. And that North America inventory position report that you see get put out every month, it's just not reflective of what Intrepid's inventory situation is.

Okay, great. And then moving forward, I just want to make sure I understood your comments on the additional brine water wells at HB solar. Did you kind of alluded that, that would create kind of the potential for additional capacity, on top of what you'd already commented on? Or is that just kind of increasing the reliability that you hit the capacity numbers you've already put out? And also, do you think you can just remind us of the expected ramp-up on that from 4Q '13?

Sure. I can give it a little bit of color. And John, if you need to hop in here, please don't hesitate. What we're expecting is that we will do 2 things. One is it increases the capacity overall, which would allow us to inject at a higher rate for a longer period of time. So making contact with the potash ore is what this project is all about. And we want to make sure that we're able to get the mine works filled as quickly as we can, and then we can have better control on the extraction rate around that. So I mean, that's really the key to this project, that it allows us to expand the areal extent of what we're mining and really drives higher concentrates to come out of the mines that way.

Next question comes from Charles Neivert of Dahlman Rose. Charles N. Neivert - Dahlman Rose & Company, LLC, Research Division: Just a couple of quick questions. One, quarter-over-quarter, well, in terms of pricing, I mean, it's sort of quarter-to-date, at least, are we currently below where you were in the fourth quarter? Is that what -- we're looking at something on that order that's somewhat lower than where we are -- where we were in 4Q?

Charlie, this is Dave... Charles N. Neivert - Dahlman Rose & Company, LLC, Research Division: You don't have to forecast anything out. Just where we are right now.

Yes, it's a -- because of the price moves that the PotashCorp announced in December and then the warehouse moves that have taken place recently, that you're seeing pricing today lower than where it was in the fourth quarter. And we'll need to see where the quarter shapes out. But like I was mentioning a little bit earlier, that is the market that the Canadians are selling into. And I think, if you look at Green Markets, from -- I don't know, pick midpoints in the quarter because they're probably representative. If you look at Green Markets, I think it was 490 to 500 in middle part of November, and I think we're at 470 to 460 right now, Charlie. So that's some of the movement that the Canadians have driven into the market. Charles N. Neivert - Dahlman Rose & Company, LLC, Research Division: Okay, so if we use those sort of as the barometers to get the movement, not necessarily the absolute value, we would look at that in terms of 4Q to 1Q as to what kind of movement the price might see on your books, give or take, something on that mark.

We tend to be about -- our net realized price historically has been about 85% of that number. It varies a little bit within that range, but certainly on a directional basis, you're likely to see that direction. The point I'll make is that, whether price tends to be going up or going down, we seem to be pretty consistent in terms of a higher net realized price than certainly any of our competitors. Charles N. Neivert - Dahlman Rose & Company, LLC, Research Division: Right, got it. And then in looking at the 4Q-1Q combination, if we look back a year, what it looks like, based on your guidance, is you're -- it looks like you're basically going to flip-flop '11, '12 with -- and '12, '13; meaning, you went 183, 203 in '11, '12, this year it looks like it's 203 and, if the midpoint of your guidance is right, 185. So it's basically same sales number tonnage wise, just different order. And then I guess the gains year-on-year are going to have to come in the remaining quarters of the year versus, again against your guidance that you've given us, having up sales volume, somewhat up sales volume.

Yes. And we really -- we look at that over the course of the year. I mean, we try to model those things best we can month-to-month, Charlie. But as you appreciate, sometimes, the season starts sooner. For a variety of reasons, there are open-weather windows or you've got heavy rains, et cetera. So we always talk about a normal year. But I mean, you've been doing this a long time too, and it's -- there are no 2 years that are exactly the same. But I think you're -- I mean, we're trying to give you the best picture we have right now looking forward. We tend to see our highest -- and this will all be in the 10-K that comes out this afternoon. We tend to see some of our highest 3-month periods being in that fall time frame. That being said, when you can look over the years, and we've seen pretty darn strong demand profiles come through in the spring. And when looking at all the factors that we've touched on in call, and we still see this as a very positive spring for the company. Charles N. Neivert - Dahlman Rose & Company, LLC, Research Division: Yes, I certainly anticipate all the farmers doing what they're supposed to do. There's no reason not to. Okay.

Next question is from Adam Schatzker of RBC Capital Markets.

Just a few quick questions here. There was a question asked earlier about 2014 CapEx, and I just wanted to clarify. You said, I think it was, "something not radically different from '13." Is that the correct interpretation that we might be looking in and around the $250 million range for 2013 -- '14 , sorry.

Yes, I understand the question. As I sit here today, I would say it will be a lower number in '14 than in '13. I also wanted to highlight the fact that we're continuing to look at opportunities, and those opportunities have a -- an IRR calculation that goes along with them. And if we think those are good opportunities, we're going to try to take advantage of the fact we've mobilized contractors, we've got engineering firms involved, et cetera. But as of right now, I would model that a little bit lower in 2014.

So closer to $200 million, perhaps, might be the right number, then.

I just don't have specific numbers to give you, Adam.

Okay, fair enough. And just in HB, can you tell us what is the percent completion on engineering drawings and the construction?

John, can you give a little color on that

Yes. Mill-wise, we're probably in the 80% completion on mill drawings. We're just basically taking everything to bid packages at this point: a little bit left on electrical, but for the most part, we're complete.

And that's the only piece that's open, right?

That's right. It's mill design. Ponds are done. It's really just the mill design. And as those are being completed, we're going straight to contracts and straight to the field.

Okay. And lastly, last quarter, we went through quite a bit of technical detail on the East facility, the LRIP and the DMF. I just wonder if you could give us a little bit of an update. I think there were some boilers we were waiting for. And when we can expect to see improvements coming through on the Trio side of the mill?

Yes, Adam, this is Dave. The -- those time lines are very consistent. So we've actually stabilized all the boiler activity right now through a rental boiler that we have. It has a nice amount of additional capacity to it. And frankly, that hasn't been an issue for a period of time. Those permanent installations will take place sometime during the second and third quarters. There are 2 boiler units. Let's see, with regards to the Trio side, as I mentioned earlier, some of the redesign work was completed in the fourth quarter. The first quarter has been about installing some of the changes that we've made in the plant design, and I'd expect that we'll start to see the benefit of that. And then frankly, we are seeing the benefit of that today, but hopefully we'll be able to show you that with demonstrable numbers here when we report on the first quarter.

And just any detail you can provide us on what changes you made?

I mean, I can give you a sense around some changes in the media preparation area, in our magnetite recovery, in just some product movement throughout the plant so that we increase reliability and runtime. Fortunately, they -- these weren't very large capital items but they're pretty important in terms of overall product movement, recovery and continuous runtime.

The next question is from Ben Isaacson of Scotiabank.

Ben is on the road, so this is Dean Groff stepping in. You answered a lot of my question on the competitive landscape in the U.S. market, but maybe we'll look at another way. What did your international weight look like this past quarter and in 2012? And where do you see that number moving in 2013?

This is Dave. One of the things that we've seen, particularly on Trio, and keep in mind, that virtually 100% of our potash is sold domestically. We do export some Trio product. I think the -- what the 10-K will show is that, over 2012, our export business is down relative to our domestic business. I think we sold about 33% to 35% of our product into the export markets...

Of our Trio.

Of our Trio. Thank you, Bob. We anticipate -- we're seeing a strong demand there, so it's not a demand question. Like Bob mentioned, we've touched a lot of folks around the world on the Trio market. We just needed to look at those markets where we thought we had good opportunities, the markets that had the product type that we were producing. So overall, I expect that we'll probably see a little bit of a growth in that, as we have more product available to us in 2013. But if -- the positive there is that the international export pricing around Trio has strengthened, just as it has here domestically. And all of that is reflected in our numbers.

Okay. Is that reflected in the margin you realized?

No, it's reflected in the revenue component of that, without a doubt. And to this point, we haven't had a whole lot of product available to utilize the pelletization plant. So it's been a -- really using that natural screening process to segregate the granular from the standard product. So it's hard for me to answer the question that you're asking on that front. But without a doubt, it's, I think, we're placing those tons in the right markets.

Okay. And that's sort of your tier products. Which countries are they hitting, predominantly?

Kelvin, do you want to answer that, or...

We're a little bit sensitive to, I guess, laying out our marketing strategy. But I think the reality is we're participating in the -- in Latin America. We're participating in a number of other continents. And I think we'll just maybe leave it at that.

The next question is from Ted Drangula of Morgan Stanley.

Guys, just one follow-up because I think we've had a pretty thorough discussion already. I would just -- wanted to follow up on the HB ramping. I guess, as it begins later this year and in 2014, how we should think about the 150,000 to 200,000, kind of how that comes online, I don't know, over a 6- to 18-month period or something like that?

Sure. Thanks, Ted. And yes, someone had asked that earlier, but I forgot to answer that portion of the question. We see a very, very modest amount of product being produced this year. Our timing on the mill is, right now, scheduled to be towards the end of November. And that's going to be our -- the piece that's important for us to start seeing production. So the benefit really starts to show in 2014. Right now, we're -- it's pretty wide range, I'd say, somewhere in that 100,000- to 150,000-ton range in '14. And then I'd ramp that up to 150,000 to 200,000 in '15. And then we start to be a little bit closer to that top-end range, is the way I see that playing out.

There are no more questions at this time. I'll turn the conference over to Mr. Jornayvaz.

I want to thank everybody for their time. The one thing we want to stress that we really didn't touch on a lot today is when you have a chance to go through the 10-K, is to take a look at the increased reserves that we've been able to establish and focus on. Dave, with that being said, is there anything you want to highlight?

No. I think that's it. Thank you for your time and your attention. And at this point, we will wrap up the call.