When Scott Sweet heard that a maker of one of the hottest products in America was going public, he jumped at the chance to buy some shares.
The stock: an obscure Denver company called Intrepid Potash Inc.
The stock shot up 58 percent April 22, its first day of trading.
“A year ago, I would have laughed if someone asked me to invest in potash,” admits Sweet, of Tampa, Fla., who also recommended the shares to readers of his IPO Boutique newsletter.
Potash?
Until recently, the product was little-known except to farmers who use it to nourish corn, wheat, soybeans and other crops. Amid a world food crisis, the fertilizer has become wildly popular, as farmers in the U.S., Asia, South America and elsewhere struggle to stretch their harvests.
The rising cost of potash is contributing to soaring food prices but minting multimillionaires at the few potash companies that dominate the industry. Intrepid Potash’s two top executives each own a stake valued at $931.6 million, based on Friday’s closing price of $51.94 in New York Stock Exchange trading.
On Monday, Intrepid’ s stock fell 7 percent, or $3.66, to close at $48.28.
“Agriculture isn’t my specialty, but fertilizer is going nuts, and I had to be in it,” says Sandy Goldfarb, a commodities trader in New York.
He bought shares in another fertilizer maker, Potash Corp. of Saskatch ewan Inc., and watched as the value of his investment has soared 50 percent this year.
Ben Holmes, who publishes LLC, a Boulder research provider for institutional investors, bought shares in Intrepid Potash after watching a pre-IPO road show online.
“It was obvious that we had to get in,” he says. “The need is astronomical,” particularly in Brazil, Russia, India and China.
Analysts warn that the potash boom could collapse. Potash is especially vulnerable because there is no futures market for it, making it impossible for investors to hedge bets. Any move by China and other big buyers to limit imports could suddenly cut demand.
For now, though, potash prices are expected to keep rising. As of April 1, red granular potash from Intrepid’s Carlsbad, N.M., mine was priced at $503 a ton — compared with $217 a ton Sept. 30. Many analysts expect potash prices to rise above $1,000 per ton.
Some farmers say they’re being gouged. But fertilizer makers say they have to charge these prices, as supply costs are growing.
Making potash requires massive amounts of natural gas, for example, and those costs are soaring.
The costs were so prohibitive that until very recently, potash was considered a dead industry. In 2000, oilmen Robert Jornayvaz III and Hugh Harvey Jr. heard about a Utah potash mine that was going to be closed because of declining production. They took it over and doubled production by applying an oil-drilling technique that had never been used for potash.
The result: Intrepid Potash now is the largest producer of potash in the U.S., generating about 8.5 percent of the domestic supply from five mines in Utah and New Mexico that have the capacity to produce 1.2 million tons of potash a year. (Most potash is imported.)
Last year, earnings at the company jumped 23 percent to $29.7 million. Sales rose 40 percent to $213 million.
