Strong case for 100% production expansion instead of 50% expansion!!
In studying slide 22 of latest presentation on 50% expansion economics where the ROI is 24% on $100 mm capital why not go for a 100% expanison.
Recognizing the partner company has tied up more storage capacity at Cushing and from an on the back of an envelope calculation and using certain rules of thumb;
-expanding to a 100% increase in capacity would probably not double the capital costs but maybe add 75% to 85% in capital costs based on rules of thumb on doubling of sizes, reduced redundancies, etc
additional $75 to $85 m would have to be borrowed say at 7% before tax
as of July 11 there will be ability to hedge fertilizer prices on expansions/acquisitions
With the reduced capital offset by interest costs and ability to lock in some portion of current sales at high prices ,could extrapolate on a 100% expansion to a ROI still exceeding 20% plus;
So with current outlook for worldwide food demand why not bite the bullet and go for 100% expansion now instead of increments spread out over years where interest rates will be higher and probably much higher and gain the opportunity to realized higher trending fertilizer prices? Sure hope they are a step ahead and already looking at this opportunity.
hello stagg uan does "not" sale nitrogen, they sale uan and ammonia. expanison is to be able to convert ammonia they sale into uan and sale uan or to continue to sale both. uan is in great demand in US and worldwide. look at presentation I referenced.
one correction only listed forward for 12 months, but could lock in first and second 12 months of ongoing uan production and use cash to protect current distributions during construction then lock in 1st year of production in 2012 for 2013 and accomplish protecting portion of cash flow