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Edited Transcript of IPI earnings conference call or presentation 2-May-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Intrepid Potash Inc Earnings Call

DENVER May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Intrepid Potash Inc earnings conference call or presentation Tuesday, May 2, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph G. Montoya

Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP

* Matthew Preston

* Robert P. Jornayvaz

Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President

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Conference Call Participants

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* Christopher Perrella

* Edlain S. Rodriguez

UBS Investment Bank, Research Division - Director and Equity Research Associate, Chemicals

* Fahad Tariq

BMO Capital Markets Equity Research - Associate

* Jason Ursaner

* Meryl B. Witmer

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash, Inc. First Quarter 2017 Earnings Conference Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions) I would now like to turn the conference over to Matt Preston, Investor Relations. Please go ahead.

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Matthew Preston, [2]

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Thanks, Kaylene. Good morning, and welcome, everyone. I remind you that parts of our discussion today will include forward-looking statements as defined by the U.S. securities laws. These statements are not guarantees of future performance and are based on a number of assumptions, which we believe are reasonable. These statements are based on the information available to us today, and we assume no obligation to update them. You can find more information about risks and uncertainties to our future performance in our periodic reports filed with the SEC.

During today's call, we will refer to certain non-GAAP financial and operational measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in this morning's press release. Our SEC filings and press releases are available on our website at intrepidpotash.com.

Presenting on the call today are Bob Jornayvaz, our Co-Founder, Executive Chairman, President and CEO; and Joseph Montoya, Vice President and Chief Accounting Officer. Jeff Blair, our Vice President of Sales and Marketing, is also available for Q&A.

I'll now turn the call over to Bob.

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [3]

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Thank you, Matt, and good morning, everyone. We made meaningful progress on our goals this quarter, having successfully executed a public equity offering and paid down a significant portion of our debt. We achieved positive gross margin in potash and made strides in the global expansion for Trio. While headwinds persist across the industry, we're encouraged by this progress and remain optimistic about the long-term prospects for our business. In March, we generated net proceeds of $58 million from an underwritten public offering of our common stock. We used $41 million of the proceeds to reduce the principal outstanding on our senior notes with the remainder reserved for general corporate purposes. Combined with previous pay downs, we have now reduced the total outstanding principal on our senior notes to $89 million, a $61 million reduction since September 30, 2016.

The success of our public equity offering strengthened our balance sheet and provides us time and resources to focus on optimizing our operations and diversifying our income streams through increased byproduct and water sales. As a result, we have ended the strategic alternatives review process that we announced at the end of last year.

First quarter potash results reflect the completed transition to lower-cost solar-only production. Potash demand remained strong in the first quarter. We sold a higher percentage of tons into the traditionally higher-priced industrial and feed markets, which, combined with the realization of last year's price increase, increased our average net realized sales price compared to the first quarter of 2016.

For Trio, sales volumes increased significantly during the first quarter. We achieved our highest quarterly sales volumes since the first quarter of 2008 and sold approximately 50% more tons than our average first quarter sales volume of the previous 9 years. Domestic customers who had moved to more of a just-in-time buying strategy purchased product as the spring season got underway and we experienced solid domestic Trio demand during the first quarter. Domestic pricing was lower compared to the prior year due to price decreases announced by Mosaic in the second half of 2016.

International Trio sales volumes increased during the quarter as we continued to expand our global market and footprint. We have now sold Trio into 15 different countries, up from 10 in the fourth quarter, with some customers already booking additional shipments. We believe this highlights Trio's position in the global market as a premium specialty fertilizer. While international sales prices are similar to domestic sales prices, our international sales are subject to increased freight and handling charges, which results in a lower average net realized price per ton. It will take us time to realize the fruits of our labor, but we believe this great multi-nutrient product will perform very well over time.

As you all may be aware, over just the past few years, surrounding our Carlsbad assets, which are located in the Permian basin, major oil companies and large independents, including Exxon Mobil, Chevron, Occidental, Concho and Devon, to name just a few, have invested billions of dollars in acquiring oil and gas assets and have announced multibillion dollar drilling and completion capital programs and especially the fracking of almost -- of the almost 2,000 DUCs or drilled but uncompleted wells in the Permian basin. These fracs require water, which has now become in high demand with relatively limited supply. Intrepid is one of the largest water rights owners in Southeast New Mexico, and we have begun to monetize those rights. During the first quarter, we finalized multiple contracts with various oil companies and water delivery companies to lease a portion of our significant rights and are currently negotiating additional agreements, but most importantly, are delivering water and collecting revenue.

As a result, we believe our water sales could generate between $10 million and $15 million of additional cash flow in the next 9 to 12 months and hope to at least double that range annually for the next several years based on the investments made by the various oil companies, their announced capital programs, the agreements we have in place and the growing interest in our water. We have also increased our focus on our salt and brine sales as we continue to further diversify our revenue stream. We're excited by the hiring of Frank Martorana, a highly qualified industrial salesperson with over 20 years of oil and gas experience, to manage our industrial potash sales, salt and brine sales expansion.

Before ending my prepared remarks, I'd like to introduce Joseph Montoya, our new Vice President and Chief Accounting Officer. Joseph most recently served as Intrepid's Controller, and prior to that, was the divisional controller of our New Mexico operations. We are pleased to have him as a member of our management team. Joseph will now update you on the financial results and the outlook.

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [4]

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Thanks, Bob, and good morning, everyone. During the first quarter, we generated a net loss of $13.7 million, an improvement of $4.7 million compared to a net loss of $18.4 million in the first quarter of last year. First quarter potash sales and production volumes decreased compared to the prior year as a result of the transition to solar-only potash production. Our average net realized sales price increased 11% from the first quarter of 2016 as we focused our sales into higher net back locations and markets. During the first quarter of 2017, we sold 22% of our tons into the traditionally higher-priced industrial and feed markets. This compares to 9% during the first quarter of last year. In addition, this quarter mostly reflects the price increases announced late last year. Increased average net realized sales prices and lower cost of our solution mines resulted in potash segment gross margin of $2.3 million in the first quarter of 2017.

Heading into the second quarter, we are experiencing stable pricing and demand for potash, and we expect second quarter results and sales volumes to be comparable to the first quarter's. As a reminder regarding the seasonality of our solar production, we plan to produce potash until midway through the second quarter, when the evaporation season begins.

We expect to restart production in mid-August.

Moving on to our Trio segment. First quarter Trio sales volume increased 52% from last year's first quarter as we made strides in expanding our international footprint. International sales accounted for 25% of our Trio sales revenue compared to 3% in the [first quarter] of last year. Average net realized sales price declined 36% compared to the first quarter a year ago, due to lower domestic prices announced last year and an increase in our international sales, which had lower average net realized pricing.

As was mentioned last quarter, to develop an international market for Trio, we are offering product at competitive prices in certain locations to engage new customers and displace competing products. We expect international sales will continue to weigh on our overall results for the remainder of the year.

Decreased net realized sales prices of $3.8 million of lower cost to market adjustments primarily related to international volumes resulted in the gross deficit of $5.2 million for the Trio segment for the first quarter of 2017.

Looking ahead, we expect Trio's sales volumes in the second quarter to be comparable to first quarter results. Similar to the seasonality of our domestic potash demand, we expect domestic Trio demand to be lower in the second half of the year as compared to the first half. Although domestic Trio pricing has been stable during 2017, our average net realized sales price can fluctuate with our mix of domestic and international sales.

Our first quarter SG&A expense was $4.4 million, a $2.2 million decrease compared to the first quarter of last year due to headcount and other cost reductions. During the first quarter, we spent $2.4 million on capital investments, and we expect our total capital for 27 to range -- for 2017 to range from $13 million to $17 million. Outstanding principal on our senior notes is $89 million with a $61 million reduction from September of last year. Our quarter end balance sheet reflects $21 million in cash, a $16 million increase from year-end, and we also have $25.5 million available under the asset-backed credit facility with Bank of Montreal.

Operator, that concludes our prepared remarks, and we are ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Joel Jackson of BMO.

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Fahad Tariq, BMO Capital Markets Equity Research - Associate [2]

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This is Fahad on for Joel. Just a question on operating free cash flow. When do you expect sustainable operating free cash flow to be positive? And related to that, in Q1, there were some asset sales. Is that expected to continue? Are there more assets that can be sold? And if so, how much? And what exactly was sold in Q1 in terms of property plant and equipment?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [3]

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We sold a warehouse, and we do not expect any further asset sales. As to free cash flow, we believe that the addition of our water sales are going to have a great impact on us achieving free cash flow. And so, Joseph, do you want to add anything to that?

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [4]

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No. I would just echo those remarks exactly. In the first quarter -- or in the year-end results discussion, we talked about the asset sale. It had to do with the decreased potash that was associated with some of the potash production that we're no longer -- or the potash that we're no longer producing. And I concur with Bob's remarks with respect to cash flow. The water sales are anticipated to have a positive impact on our cash flow over the next 9 to 12 months.

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Fahad Tariq, BMO Capital Markets Equity Research - Associate [5]

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Great. And then the only other question I had was actually just related to water sales. So can you give a bit more color? I know you talked about the free cash flow. I think the number you had given for the next 9 to 12 months was $10 million to $15 million and you expect that to grow over the next few years. Can you just give a bit more color on the earnings impact? And are there competitors that had -- is this something exclusive that Intrepid has the right to? Are there competitors? Just a bit more color on the water opportunity.

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [6]

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Well, yes, there are competitors out there that have water, but there's much greater activity in our area. So it's put a much higher demand. And since we have a variety of water rights from a variety of sources, everything from well fields to Pecos River water rights, we have just a whole variety of water rights that are in different forms. And so we have the ability to monetize those and lease those in very different ways and in very unique ways. And we have the infrastructure in place to deliver the water, so we have very little cost associated with that. So when we look at the billions of dollars that have been invested around us and the capital programs that have been announced, and the interest that we have on an incoming basis, on a weekly basis, and the agreements that we've signed, we feel very comfortable that those revenues will grow, that we have a great opportunity to grow those revenues based on the discussions that we're having with some of the major oil companies and their plans and what they're putting in place. So we feel that it's a great opportunity for us, and we're fortunate to own such significant rights.

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [7]

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Fahad, the only thing I would add with respect to that question is the infrastructure. Oftentimes, when companies venture down at new revenue streams, there's a lot of capital investment required. And as Bob mentioned, the infrastructure for the sale of our water is already in place. So you ought not expect huge peaks in depreciation or capital investment related to this.

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Fahad Tariq, BMO Capital Markets Equity Research - Associate [8]

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Great. And just in terms of the earnings kind of impact, if you were to quantify it from the water sales.

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [9]

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Yes, I would stick to the range that Bob's given in terms of dollars. I would also say it's early on and there's a lot of demand out there. So we'll stick with that number for now and we'll see how it comes to fruition.

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Operator [10]

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The next question is from Edlain Rodriguez of UBS.

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Edlain S. Rodriguez, UBS Investment Bank, Research Division - Director and Equity Research Associate, Chemicals [11]

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Just one quick question. Given all the production shift that has occurred between the different products and so forth, can you please remind us of like what's your production capability in potash and Trio right now?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [12]

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Well, our capacity, our solar capacity on the potash side is, as you know, slightly weather-dependent. But somewhere in that 350,000 to 400,000 tons of solar production. As you know, we've idled our west plant and we've converted our east plant to Trio only. That has a capacity of about 425,000 tons. We actually replaced every potash ton with a Trio ton. And so we now need to continue, as we said repeatedly, to expand our marketing capabilities and our global footprint. So we're trying to find the right production number so that we can match supply with the appropriate demand so that we can achieve the highest netbacks.

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Edlain S. Rodriguez, UBS Investment Bank, Research Division - Director and Equity Research Associate, Chemicals [13]

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That makes sense. And on Trio, I mean, given that the demand has been strong globally, now you are selling into more countries, should you be able to sell everything you produce?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [14]

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Edlain, it takes time to develop a global footprint. As we said in the fourth quarter, we'd sold into 10 countries. We've now sold into 15 countries. We visited over 20 countries. So it takes time to develop those markets. So we've got a good strong solid domestic market. And as we develop that global footprint, we'll be able to produce more along the lines of our capacity, of our proven capacity. But right now, we're trying to find that right supply number to meet the demand so that we can maximize margins and hit the right netback number.

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Edlain S. Rodriguez, UBS Investment Bank, Research Division - Director and Equity Research Associate, Chemicals [15]

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That makes sense. And one quick one, just like in terms of modeling. Like in terms of like the shares outstanding going forward, like what should we be thinking of? So I assume the first quarter then fully reflect the share issuance, right?

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [16]

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No, you're right, Edlain. The share issuance was late in the first quarter, and so the impact on the weighted average shares outstanding, obviously, is minimized for the first quarter. In terms of outlook, I would just say, we're always looking to maximize our cash and our balance sheet, and so that's one of the things we'll be looking at amongst other things. But don't have anything to commit or comment on right now.

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Operator [17]

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The next question is from Christopher Perrella of Bloomberg Intelligence.

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Christopher Perrella, [18]

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Question on the cost of goods sold for the potash. Are all the volumes production solar this point? I thought it would be lower for -- lower COGS per ton going forward. Could you give some color around that?

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [19]

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Some of the additional costs at our Carlsbad facility related to our North Compaction were previously shared between our west and our HB facilities there. And so with the idling of the west plant or the conversion or transition, the care and maintenance of the west plant, there are some additional costs now that will be borne just by HB. And so there's a slight uptick with respect to the potash price in New Mexico. And then obviously, just from a pure math perspective...

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [20]

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Yes, those are really low tons -- sorry to interrupt. But those are all, right now, directly allocated to the HB production. As we continue to increase our salt and potentially salt and load up salt from our north facility and increase our brine and water sales, those costs will get more allocated across a variety of product streams, if that makes sense.

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Christopher Perrella, [21]

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So I should think about sort of the $20 million on a quarterly basis as the run rate COGS for potash on a go forward? And then as you boost revenue and byproduct tons, the numerator will get larger but that denominator will be about the same?

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [22]

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Yes, that's a fair -- I would say that's a fair way to look at it.

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Christopher Perrella, [23]

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Okay. And then on the water rights, how should -- or the water sales, that's going to layer in, and you said $10 million to $15 million over the next 9 to 12 months and that'll sort of -- you'll be at $10 million on a sort of an annual run rate basis this time next year?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [24]

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Our hope is to double that range over the next several years and continue it, because when you look at the announced programs, our goal would be to double that range in '18 and then see that move forward over the next several years. So our goal would be to double that range from $10 million to $15 million to $20 million to $30 million in '18.

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Christopher Perrella, [25]

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Okay. And then drive it higher off of that?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [26]

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That's correct.

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Christopher Perrella, [27]

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Okay. So not -- okay, understood. All right. That was all the question -- oh, one question on the balance sheet. What is a sustainable or a comfortable cash balance on the balance sheet to run the current rationalized footprint?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [28]

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Well, as you know, running solar facilities, there's a lot -- a much smaller chance of something catastrophic going wrong or having to spend more capital. So our goal is to continue to use excess cash to pay down debt to get our balance sheet in very, very strong shape. And so we're working on trying to come up with that right cash number, but it is definitely lower than it has been in the past. And so our requirement for working capital is a much smaller number than in previous years. And we're fortunate to have our BMO facility in place that has a lot of [room on] as well.

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Operator [29]

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The next question is from Jason Ursaner of Bumbershoot Holdings.

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Jason Ursaner, [30]

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Congratulations on the recapitalization. Just a couple of more questions on the water rights in the Permian. This is the second quarter where you really mentioned the water rights and water sales, and appreciate the added details on potential revenue. But just by your tone, I mean, you sound very excited. So I want to make sure, sort of understanding it better, the majority of the rights you're talking about are in, I guess, Lea and Eddy County?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [31]

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It's Lea and Eddy counties, and they're in various forms. They're in 3 or 4 different well fields and then Pecos water rights. So they take -- the great thing is that they're in various forms, if you will, so the water rights are diversified, and they're old water rights, so they have a lot of seniority. And it is something that we're very excited about because we have the infrastructure in place, the well fields are in place, the pipelines are in place, and the drilling is occurring all around us. And it requires freshwater, and we have a lot of incoming inbound interest. And we've, in the first quarter, signed several deals that we started talking about it on the fourth quarter call. But since we've now executed these deals and we're now having regular meetings with the potential users of this water, we're getting a much better handle on what that revenue stream could look like. And we promised to give you more color as we learn more and as we sign those agreements, and that's what we're trying to do here.

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Jason Ursaner, [32]

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Right. And obviously, you used a lot of water though for filling the ponds for the solar tons. How much is kind of internal versus how much is excess water? Is there any trade-off with filling the ponds, or is this is all incremental?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [33]

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None whatsoever. In fact, the range -- the higher range that I threw out, if we could get to $20 million to $30 million of water sales, would be less than 1/3 of our water rights. And then the water that actually goes into the HB Mine is more Rustler water. It's not -- it's non-potable water, so there is no trade-off.

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Jason Ursaner, [34]

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Okay. And Select Energy Services just came public through an IPO, and it has made an acquisition of a company Gregory Rockhouse as recently as March, I think. There have been various public notices kind of in the past with lease agreements. It sounds like selling or leasing our water owned by Intrepid to them. Has most of our water activity to date kind of gone through them as a major customer in terms of the infrastructure that you're talking about?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [35]

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They are a -- they are one of many customers. And so we want to congratulate them on their successful IPO of -- they've done a great job. And the Gregorys have been great to work with. So, Jason, I commend you on doing your homework. And so they're just one of several customers that have done a great job of building out a water delivery infrastructure.

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Jason Ursaner, [36]

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Got it. It sounds like there's also, though, I guess, some opportunity to contract directly with large E&P firms, though. I mean, you had mentioned some names that are down there.

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [37]

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We have a large geographic footprint around the mines. And so every oil company is in a different -- slightly different geography as they surround the mines and are located closer to different well fields and different sources of our water. So that's why we differentiate as to who gets what because it's really based on the geographic location of the activity and where the water's coming from.

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Jason Ursaner, [38]

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Okay. And then just I guess last, in terms of value, I mean, you mentioned Exxon Mobil with the Bass family and Concho, Devon, et cetera. I mean, it's kind of a who's who of energy companies down there in the Permian. Obviously a lot of competition for wells. And I mean, I've read about kind of the amount of water to frac a well going up fold by fold over the past couple of years. So when you kind of went through the strategic process, in terms of a trade-off, would the value -- would it not have been there if you had looked to monetize them? Was there no real market? If maybe these had been auctioned off? Or on the other hand, obviously, you as the largest shareholder, do you see the potential value of some of these rights kind of in your mind, are they so great, has the opportunity down the road sort of work the dilution now to keep those rights?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [39]

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Well, we're selling -- we're generating significant cash flow on an annual basis, and we believe that will occur over many years. There's decades of drilling that needs to occur. And so as you well know, an asset that has a proven revenue stream, you can then put a multiple on it, has a much greater value than one that's just getting started. So our ability to generate significant cash flow at a very low cost, we think, is a better way to create and achieve long-term value for our shareholders by developing that revenue stream.

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Operator [40]

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The next question is from Meryl Witmer of Eagle Capital.

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Meryl B. Witmer, [41]

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My first one is on the solar cost of goods sold, and you may have said this, I couldn't quite follow it. Is the layers of inventory that you sold, is that -- are they representative of the big rainfall year that occurred a couple of years ago or last year? Or is that kind of a good number to go with going forward for cost of goods sold on solar -- for normalized weather?

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [42]

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So are you asking about volume or cost, Meryl? I want to make sure I understand the question.

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Meryl B. Witmer, [43]

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The cost.

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [44]

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Yes, I would say the cost and the volume is going to vary relative to rainfall, as you pointed out. I think the more rain that we get, it's going to shorten our evaporation season, our harvesting season, that is, and will generally have a higher impact on our cost per ton. That being said, it's a pretty low-cost profile to begin with. A lot of the cost has to do with specific labor to harvest the tons that we're producing. And so it is somewhat variable with respect to that. It's hard to answer your question because it's a weather-related question, and...

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Meryl B. Witmer, [45]

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No, no. What I asked was, was the inventory sold in this quarter, was it a layer from the year with significant rainfall, that 1-in-100-year rainfall that occurred? Or is it...

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [46]

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No, I would submit -- so that was probably 2 years ago that we had the 1-in-100-year rainfall. So that inventory is long gone. Our inventory turns relatively quickly with respect to our potash production. So the answer to your question is no, the inventory that we sold in this quarter is much more recent than that.

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Meryl B. Witmer, [47]

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Okay, great. And then on...

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [48]

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It still had 2016 -- it still had 2016 production in it that got sold, if that makes sense.

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Meryl B. Witmer, [49]

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Right. So since there were delays around this, that's why I was wondering, is it from that year of the bad rainfall...

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [50]

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The increase in solar production, as I mentioned, has more to do with the downsizing of our footprint with respect to potash down there more than anything, the increased appreciation associated with the North Compaction facility. And again, as Bob pointed out, we're continuing to look at various byproduct revenue streams to share and allocate those costs. So not sure that answers your question spot on, but that's kind of where we're going with respect to the outlook on potash costs.

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Meryl B. Witmer, [51]

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Okay. And then could you go into the interest expense, like just why it's so high and what it should look like going forward?

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [52]

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Yes, absolutely. And we talked a lot about this throughout last year in conjunction with the 10-K. Throughout last year, we (inaudible) our noteholders and ended up with interest that's significantly higher than the coupon. And all that's disclosed both in the K and in the Q. And so consequently, we have a significant amount more of interest expense. A layer on top of that, though, we've also taken on some interest expense by choice, if you will. As Bob mentioned, we've paid down significantly our debt, and each of those debt payments contains a make-whole adjustment, which is essentially interest expense that we've again talked about in the K and Qs as well. And so the interest expense is much larger than it was last year as it related to all of those things.

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [53]

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Yes, part of the negotiations, when you go back and read the previous Qs and the K, we have the opportunity to get back to our original interest rates by achieving certain goals, which are very well outlined in the Qs and the K. So that's our goal to get our interest expense down, is #1, to reduce debt; and #2 is that we built an incentive structure into the noteholder agreement so that if we meet certain ratio targets, that we get our actual coupon rate down. So I just urge you to take a look at the Qs and the K.

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Meryl B. Witmer, [54]

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Okay. And then someone asked a question about the amount of cash you need to have on the balance sheet, and you gave a long answer, but I didn't actually hear an answer in that. Is that -- it's just an unknown right now?

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Joseph G. Montoya, Intrepid Potash, Inc. - Principal Financial Officer, CAO and VP [55]

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It's not necessarily an unknown, it's more of it's not something that we're going to comment on. We've got an amount of cash and we need to determine internally how much of that we're going to use to pay down debt and when, and we're not -- and we're just not going to talk about that publicly.

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Meryl B. Witmer, [56]

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Okay. And then on the brine sales, I'm wondering like who is the customer base for that and what is the potential there?

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [57]

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That's a great question. We've developed 2 brines that we're now selling into the oil and gas market. So that's the primary market for that. It's a heavy brine and then a KCl brine. And so as we have done on the freshwater sales, as we develop those businesses out and can give you more color on that and the increased salt sales, we'll try to provide you as much guidance and color as we can. But the one thing is that we've been very clear that we're going to continue to diversify our revenue stream, and we continue to do that very successfully. And so as we get more color, we'll give you more color.

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Operator [58]

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This concludes the question-and-answer session. I would now like to turn the conference back over to Mr. Bob Jornayvaz for closing remarks.

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Robert P. Jornayvaz, Intrepid Potash, Inc. - Co-Founder, Executive Chairman, CEO and President [59]

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Just want to thank you, everyone, for your interest and taking the time to listen to today and for your interest in Intrepid.

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Operator [60]

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Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.