Extra Salty: Is Intrepid Potash a Stealth Energy Royalty? $IPI

I promised to my subscribers that I would be transparent if I sold any shares of Opendoor, and under immense pressure from Mitch, I must admit I trimmed 10% of my position. I didn’t even get the best price of the day, what an absolute loser. If the price falls back down toward $6 a share, I will be buying them back.

But I must admit that the meteoric rise of OPEN has me feeling a bit like Icarus, and I can feel the wax on my wings starting to get a little soft. I think to myself, what’s the opposite of a high flying tech network turnaround? How about I deploy some of those gains into Intrepid Potash?

Intrepid Potash (IPI) was a bit of a darling a few months ago under tariff fears. The Potash market is concentrated in belligerent countries such as Canada, Russia, Belarus, and China. Large American listed companies such as Mosaic (MOS) have most of their production in Canada, and “elbows up” Carney thinks it’s better to have a trade war than to equalize trade protectionism. He certainly doesn’t want to throw any money into the pot to counter the rise of China, Canada won’t even cooperate with the US in prosecuting Chinese organized crime who launder fentanyl money through the Canadian real estate market.

But little old Intrepid Potash has a 100% US domiciled supply chain for potash, which caused the stock price to spike in April as the market feared prolonged trade wars. As the market started to appreciate that everyone is just making deals with Trump, IPI’s stock price has come back down to earth, falling from $38 to $29. The former CEO and Chairman of the Board, Robert Jornayvaz, owns about 10% of the company, but he has had a regular sell program in place for years. Nobody has engaged in insider buying since 2019, which is not ideal, but is also pretty standard in corporate America.

Potash, Potassium Chloride salt, is one of the big three agricultural fertilizers. Today it is mostly mined, but once upon a time it was leached from wood ash. The price has fallen from $1,200 a metric ton in 2022 to $356 today. Agricultural cycles are independent from general market behavior, typically a major crop failure drives up average prices, and the farmers become flush with cash and start spending money like congressmen. We haven’t had a major staple crop failure for several years, and the farmers are really feeling the pinch. As the farmers are squeezed, the prices of their inputs collapse on weak demand.

But the thing about cycles is that they turn. I have no guidance on when the agricultural cycle will turn, it’s based on the weather, and meteorologists make economists look credible. Will IPI get cheaper before it gets more expensive? Probably. But the market is feeling frothy, and there isn’t much that is bouncing along the bottom. Since revenues are based on the commodity price, I can look at IPI over time based on price to book.

IPI currently sits at a price to book of 0.78x. In 2022 and 2017, when potash prices were high for a brief period, the price to book ratio rose to about 1.5x. But in 2010, when potash prices were high for a prolonged period, the price to book ratio rose to about 3.5x. Of course none of us know when the potash market will enter a prolonged supply shortfall again, but it’s nice to know what kinds of things are possible if you want to hold a weather-based lottery ticket in your portfolio.

I asked some large language models to collect various commodity forecasts, and they are pointing to the next undersupplied period for Potash to come around 2028. But what do they know? If farmers have a windfall, they’ll start spending that money, and if they don’t, they won’t.

Intrepid Potash currently makes about 300,000 tons of potash a year. At $330 per ton, that’s about $100 million in revenue. IPI has a premium product aside from potash, instead of KCl, it is K₂Mg₂(SO₄)₃, a naturally occurring potassium, magnesium, and sulfate mineral called langbeinite. This fertilizer provides three important minerals, but it is also low chloride, which is important for certain crops, mostly fruit orchards. This premium fertilizer trades at about $400 per ton, about a $50 premium over potash. Production last year was about 230,000 tons of langbeinite, which IPI brands as Trio, probably because nobody wants to say langbeinite. Not only does Trio sell for more than potash, but costs of production are about $100 per ton lower as well, although potash production creates some saleable byproducts offsetting this difference.

The next time Potash sees $1,000 per ton, that’s $530 million in revenue and $400 million in profit that falls straight to the bottom line. The current market capitalization sits at $388 million. This means that IPI currently trades at less than 1x price to earnings for the next potash boom. The only problem is nobody has any idea when the next potash boom will be.

IPI also has another revenue source. One of their potash mines is in southeastern New Mexico, which if you are an energy bull, should ring a bell as it is the Permian basin. Exxon paid IPI $50 million in 2024 as part of a longer term agreement in exchange for IPI not challenging Exxon’s drilling. A second $50 million payment will be due as soon as drilling starts, but there is no guidance as to when Exxon will choose to start production. After production starts, there is a certain profit sharing schedule as well. I suppose having 22,000 acres of Permian Basin real estate would make Intrepid Potash a significant stealth oil royalty. Recent land sales in the Permian have ranged from $17,000 to $30,000 per acre, which would put that single asset as potentially more valuable than IPI’s current market capitalization. Permian Basin Royalty Trust owns 51,000 Permian acres, and their market capitalization is $840 million.

I love turning over rocks and finding value, it’s amazing what sorts of things can be found that the market isn’t pricing in.

The Permian Basin:

If and when the next $50 million comes in from Exxon, management has teased the possibility of share buybacks. I am not putting much weight on this tease, however, because they have not engaged in meaningful share buybacks before, instead choosing to grow production and crush the prices in their own market.

But even without share buybacks, Intrepid Potash is not a melting ice cube, they are relatively stable, and commodity forecasts favor them, for whatever those forecasts are worth. They are debt free, and have about $6.50 per share in cash on the balance sheet. They appear to have negative net income, but this is due to a non-cash asset impairment. When potash prices are low, accounting rules demand they lower the book value of their mines, resulting in GAAP net income losses. A potential catalyst is when that loss rolls off the trailing twelve month figures, GAAP net income flips from losses to profits, and the algorithms mistake it for growth.

All things considered, in this frothy market with few bargains left to find, I think Intrepid Potash is a very reasonable potentially uncorrelated lottery ticket. If potash prices are briefly high, the stock should return to $60. If potash prices stay high for a prolonged period, the price target jumps to $135. And nobody knows when that will happen, because we would all be waiting for a major staple crop to fail to drive up agricultural commodity prices and refill farmers’ bank accounts.

Intrepid Potash (IPI) $29.13: $60 on the next potash boom

Intrepid Potash (IPI) $29.13: $135 in a prolonged potash boom