Today, we'll will answer one simple question:

How much can $10,000 in AMC today, grow into in 10 years?

Business Overview

Diversified mineral company, producing:

1. Potash

2. Trio

3. Water

4. Byproducts (salt, magnesium chloride, brines, others)

Potash

• The only US producer of potash

• Essential nutrient serving three primary markets: Agricultural, Industrial (for drilling, fracturing for wells & input in industrial processes) and Animal Feed (as a nutrient supplement)

Trio

What: A fertiliser that delivers potassium, magensium & sulfate in a single particle

Water

• Intrepid Potash has permitted, licensed, declared & partially adjucated water rights in New Mexico.

• Intrepid sells water primarily to oil and gas development in the Permian Basin.

Revenue Mix

• Potash comprises 50% of revenue in 2022, up from 47% in 2020.

• In 2022, supplied about only 0.5% of potassium consumption, and 3.5% of US consumption. Opportunity for market share expansion.

• Huge seasonality in products. Demand is higher in March-May and Sep-Nov for Potash, higher in Q1-Q2 for Trio.

Competitive Strengths

• Only US producer of potash

• All potash comes from solar solution mines, which are cost-efficient, which means higher gross margins

• Water rights in New Mexico

• Significant reserve life (potash have substantial years of reserve life)

• Existing infrastructure = barrier to entry, because it is expensive to build & therefore not easily replicable.

• Lower risk from customer diversification - no customer accounts for more than 10% of revenue

Competitive Strategy

• Maximise potash gross margin & optimise potash production. We can expect favourable gross margins moving forward.

• Maximise Trio gross margins and expansion of sales & marketing into more markets.

• Expand offerings of oilfriend solutions: water, water royalty, caliche, right-of-way agreements

• Byproducts of potash & Trio production will continune to diversify portfolio of Intrepid's offerings

Revenue

• U shaped revenue curve. $354M in 2014, low of $136M in 2017, rebounded back to $294M in 2022.

• Revenue fluctuates heavily with the price of potash. Potash was $713 per ton in 2022, $353 per ton in 2021, offset with lower unit ton sales in 2022.

• Trio was $479 per ton in 2022, $295 per ton in 2021, offset by lower unit sales in 2022.

• Water sales increased to $22.4M in 2022 from $22M in 2021.

• However, prices are expected to drop in 2023 and demand is expected to increase, as purchasers are more prepared to buy.

Forecasting Revenue

PotashGuidance: 80k to 90k tons with net sales of $470-$480 per ton in Q1 2023.

• Due to seasonality, I am forecasting 275k tons of Potash sold in 2023

• 80k in Q1, 60k in Q2, 75k in Q3, 60k in Q4 = 275k

• I will forecast that unit sales will reach close to productive capacity in 2024 onwards, plus any carryover inventory from the drop in 2022 sales.

• I will forecast a conservative normalised price of $320 per ton of Potash, with the assumption that prices will normalise after supply chain issues have smoothened out by 2024.

• Management will expect general elevated pricing + they seek premium pricing over volume, which means the expected figure will be higher than $320. I will remain conservative for this forecast.

Trio
Guidance: Q1 2023 to sell 55k-65k tons at $335-$345 per ton.

• Tons of Trio Sold: Similarly, due to seasonality, I assume 55k tons will be sold each in Q1 and Q2, then go back to 40k in Q3 & Q4 as spring season ends.

• Net price per ton: I am forecasting prices of Trio will go back down close to historical levels of ~$270, but remain elevated at $290 until 2032, due to inflation.

Others

• "Others" segment historically is at about 16%.

• Due to Intrepid's MOAT around their water rights & Intrepid South assets, I am forecasting this segment will take a higher number of 18% instead.

Earnings

• EBITDA Margin of 47% in 2022, up from 29.3% in 2021, higher than past decade average of around 25%.

• Intrepid will priotise markets with highest average net sales per ton. We will forecast a 30% EBITDA margin in the next decade to be conservative.

Here is the forecasted revenue & EBITDA until 2032.

Balance Sheet

• Balance sheet is super healthy.

• No short term or long term interest-bearing debt.

• The only debt is capital leases which stands at $2.21M, which pales in comparison to the whopping $18.51M of cash & equivalents.

• Hence, net debt/EBITDA = 0. Our criteria is

• However, they still run a capital intensive business, and history shows Intrepid issued a net gain of diluted shares: 7.58M in 2016 to 13.45M in 2022. We will factor share issuance in our forecast for the next decade.

Cash Flow

• CFO: Cash flow from operations reached $88.8M in 2022, a high for Intrepid.

• CAPEX: Average CAPEX margin for the past 3 years is 52%. The mining business is capital intensive. Hence, I will stick to a 52% CAPEX margin.

• Cash flow historically has been very volatile, and is more difficult to predict. Hence, the best way to forecast moving forward is using the growth rate used for EBITDA - the proxy for free cash flow.

• DEBT: As mentioned earlier, their balance sheet has low debt. Their capital structure is to instead raise equity to fund capital expenditures. Hence, I will assume no debt issuance for the next decade. Their net debt/EBITDA is zero in 2022.

• DIVIDENDS: They do not issue dividends and I will keep it at zero for the next decade.

• FCF Yield: Their FCF yield has been a rollercoaster, so I will take their most recent FCF yield of 4% in 2022 to calculate their share price in 2032.

Hence, this is the stream of cash flow until 2032.

Shares & FCFE/Share

• Intrepid's diluted share count is at 13m in 2022, compared to 7.5m in 2013, an almost doubling. As their assets start producing higher earnings into the future with demand remaining strong, I expect their share count to increase but at a slower rate.

• I am forecasting a 6% share issuance annually and pauses in 2028.

• Hence, the FCFE/share in 2032 is forecasted to be $2.15/share.

Calculating Share Price in 2032

EV/EBITDA Forecast

• Taking 2032's forecasted EBITDA of 124M, I will apply a 7.5x multiple, as it ranged around that area minus the outliers.

• This gives a stock price of $53.49

FCFE Forecast

Applying the 4% Yield to 2032's FCFE/share will yield a $53.85.

Hence, we have our two price targets:

• EV/EBITDA: $53.49

• FCFE: $53.85

• Applying an equal weighting: I get $53.67.

This will give us this IRR distribution, taking $27.98 as the closing price as of 3rd April 2023.

How much will $10,000 grow into?

This will yield us:

a 13.49% IRR.

$10,000 will grow into $35,455 in 2032, in Intrepid Potash.

Assuming a 10% market return in the S&P500, you will beat the market by $9,517.