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IPI

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Intrepid Potash (IPI)

Note:  This link will not work until the IPO is launched and it is an active stock... expected the week of 4/21/08.


JJC:    I've got a brand new one... a brand new IPO for you... a fresh IPO... coming out in a group where I think the bonafides are better than any other... agriculture.

I've been recommending this ag group for years now, and I think that I'll keep recommending it for years... I even put it in Stay Mad ... as one of the best long-term themes out there...

And I think Intrepid Potash, which will trade under IPI, a fertilizer IPO that is 100% potash that should come public this week, is the next great way to play this theme...

To me, the combination of worldwide drought, worldwide famine, and our national - some would say reckless - attempts to ramp up ethanol... makes this the theme that just won't quit...

Now, IPI is coming onto the scene. This company will be the first western pure play on potash out there. That's right... despite Potash (POT)'s name, it's only one-third potash... IPI... 100% potash. And IPI has lower production costs than big brother POT. Pure bred potash... and what's not to like.

Why do we love potash?...

It's an essential part of the ag bull market, and one where supply hasn't been able to keep up with demand, and that means higher prices...

China, Brazil, India... They need 16 million more tons of potash to meet their grain growing needs, and help them deal with the global famine... but the potash just isn't there. There are only 20 or so potash deposits in the world. Existing potash makers are running at about 93% capacity, which is about as high as they can get theoretically. That puts potash in the sweet spot...

Speaking of sweet spots, IPI has a huge advantage over Canadian producers, because of where its mines are located... They're much closer to sources of U.S. demand than Canadian producers.

Let's talk about the deal...

This one's being underwritten by Goldman Sachs, Merrill Lynch, and Morgan Stanley. In other words, they are the principal allocators of the stock. And that usually means it's going to get some sponsorship from these firms... I would give these brokers some commission dollars if I wanted to get in on the (IPO) deal... There's nothing wrong with doing commission with a broker, and then asking for 100 shares of IPI.

They're selling 30 million shares, and the deal should price, again, on April 25th... It might be delayed a day... but that's the date they're shooting for.

IPI is expected to use about 80% of the proceeds to buy Intrepid Mining... All right, I don't like this... It's a company that's owned by Intrepid's founders. It seems like a little self-dealing there, but I don't mind. Because I like potash so much, and 10% is going to be used to pay off debt, with the remainder going to production expenses...

I think you should try to get in on this deal... IPI... but, if you can't do that, and you have to buy some shares in the aftermarket, let's use some parameters...

Do not pay more than $34 a share...

I did not pick that number right out of thin air. Here's how I got to it...

I think IPI could earn $1.24 in 2009. What multiple do we give it? I think you get a 55% premium, worth 55% more than Potash (POT)... remember, you view these things as price-to-earnings multiples... which trades at 17.3x earnings... because (IPI) is a pure play... and because of those lower production costs... and that means a $34 price for IPI...

I think that IPI goes much higher than that but, if you're trying to snap it up in the aftermarket, you've got to use a ceiling. There are too many people that get hurt otherwise, and I don't want that happening.
 

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Bottom Line!:    Ag has been one of our biggest winners, and I think Intrepid Potash (IPI) - as the first pure play on potash in the west - should be a great way to keep riding the ag theme higher. Try to get into the IPO... by doing a little stock (commissions) with Goldman, Merrill and JP Morgan... It worked with Visa Inc. (V), our last IPO recommendation. We think it will work again with IPI, our purebred fertilizer play...