Carlsbad Current-Argus
July 24th, 2005

Back in Demand
 - by Jason P. Montoya

CARLSBAD — Greeting the public at the main entrance to the Lake Carlsbad recreation area is an antiquated train engine that once hauled potash and supplies to and from the area’s potash mines.

The train is a reminder of the importance of the potash industry to the community. However, for several years the industry was in decline, with prices dropping, costs rising and employees finding themselves searching for new lines of work.

Over five months in 2003, approximately 450 of the nearly 1,000 people then employed by the area’s two mining operations experienced some period of unemployment due to layoffs.

Things have changed dramatically in the two years since. Prices have increased from less than $100 per ton to more than $130 a ton in less than two years. Now, the potash industry is experiencing a boom, with employment high and optimism high.

For approximately 25 to 30 years, potash production outpaced demand, according to Randy Foote, Intrepid Mining plant manager. But the market has changed recently.

“Starting about two years ago, we got to a point in the cycle where the demand was more than the production. That’s why prices went up,” he explained.

There has been an increase in demand for potash in Indo-China nations and Brazil, according to Foote. Last year, China’s imports of potash-based nutrients increased by 19 percent. Although little local potash is sent overseas, demand from overseas has sucked up much of the world’s potash supply, creating a domestic demand that area mines are pleased to fill.

“There has been a big improvement in the economics of the operation,” Foote said. “Higher prices have led to greater profitability. Our new owners are taking advantage of the high prices by putting the money back into the facility rather quickly to change the dynamics of the operation and give it security going forward into the future.”

In March 2004, Denver-based Intrepid Mining LLC purchased Mississippi Chemical Corp.’s Eddy County holdings for approximately $27 million.

Less than a year earlier, Mississippi Chemical had filed for bankruptcy. Mississippi Chemical had owned two local operating mines — the West Mine and East Mine — along with Eddy Potash Inc.’s former holdings.

Since Intrepid’s purchase, things have been looking up for the area mines. Still, Intrepid officials are balancing their elation with pragmatism.

“The new owners are good and experienced people, and also fortunate,” Foote said. “They came in at a good time. But they are doing things the right way.

“We are not sure how long it’s going to take for the cycle to change and prices to go down. They are taking steps to increase our capacity,” he said. “Our goal during this period is to lower our cost of production so we will be competitive when the market dynamics change.”

Intrepid employee Johnny Rodriguez is excited about the state of the potash industry. Rodriguez, a mine employee since 1989, said things are going well at the company right now.

“It’s an up and down industry. But we have security now,” he said. “Things are going very well right now. Things are looking up, and the new owners have been good to us. Hopefully, the company will continue to do well.”

Rodriguez, who works in Intrepid’s safety department, was one of the hundreds of mine employees furloughed in 2003. He said the layoff was hard to deal with. Still, he said he plans to stay in the industry.

Rodriguez said his coworkers are also generally happy with current events in both the industry and within Intrepid.

“Of course, there has been a lot of changes going on, and people are not used to that. But new technology is here, and we just have to adjust,” he said. “Overall, everyone is pretty pleased.”

At nearby Mosaic, employees and company officials are also pleased with the rejuvenated industry.

Mosaic was created in October when IMC and Cargill Crop Nutrition combined to form the world’s largest producer of potash.

Bill Boyer, surface operations manager at Mosaic, said the mood is generally good at the plant.

“The employees see the demand and are aware of what’s going on in the industry. A high demand is always good for job security,” he said.

Together, Mosaic and Intrepid employ close to 1,100 workers in the area and produce approximately 2.3 million tons of sylvite and langbeinite potash ore.

Totals are lower than in 1980, when seven operators employed close to 2,200 employees and produced 3.8 million tons of potash. However, both Mosaic and Intrepid have increased employee numbers during the past 1½ years and say they have taken steps to increase production and efficiency.

At Intrepid’s East Mine, the company is in the process of constructing a $10 million langbeinite processing plant.

Intrepid’s local mines currently produce sylvite, the more common variation of potash, but Foote explained that the mining operation is currently mining an ore zone that contains a mixture of sylvite and langbeinite.

“We’ll almost double the amount of product we get once that plant starts up,” he said. “It’s a very smart move on our part and will dramatically alter the economics of that plant.”

Langbeinite is a rare potash ore that is unique to the area. Mosaic already produces langbeinite, which it markets as K Mag. Intrepid will market its langbeinite as Magna K.

In addition to the langbeinite plant, Intrepid is in the early stages of establishing a new solution mining operation to help recover lost reserves at the former Eddy Potash mine.

According to Intrepid, solution mining is a common practice in potash reserves in Utah, where the company owns a solution mining operation. Solution mining also occurs in Michigan.

The local solution mining operation will involve taking water out of the Rustler Formation that is too salty for alternate uses, according to Foote.

The water will be pumped into the mine, where it will reach saturation and then be brought to the surface to be evaporated in large solar ponds, leaving sodium chloride and potassium chloride, or potash.

The project will be implemented in several phases with an estimated cost between $20 million and $27 million. The first phase will involve hiring an additional 20 employees, according to Foote.

Even after an extended industry slump, the potash industry remains a major contributor to local and state economics, with an annual payroll of more than $65 million, according to the Potash Association of New Mexico.

The association estimates that another 3,000 workers are employed indirectly by the area potash industry, bringing the total payroll to $215 million.

In 2002, the potash industry paid the state of New Mexico $8.8 million in royalties and property and sales taxes. An additional $80 million was spent in New Mexico on materials, energy and additional taxes, bringing the industry’s total estimated statewide economic impact to $304 million, the Potash Association of New Mexico states.

The potash industry’s success is coming at a time when the oil and gas industry is also experiencing a boom, which has decreased the labor pool available to the mines.

“It’s certainly getting more difficult,” said Don Purvis, Mosaic plant manager. “The labor market in Carlsbad has tightened up noticeably. It’s definitely tighter than it was during the last five or six years. That’s probably good for Carlsbad and the people looking for work.”

“Not only has the potash industry improved, but so has the oil and gas industry,” Foote said. “So we have seen more turnover than we normally see. We have not gotten to full staffing levels yet.”

Purvis said Mosaic traditionally has not competed with the oil industry for workers.

“I suppose in some (skill) areas it has made a difference,” he said.

The labor market is not the only area in which the oil and gas industry and the potash industry are competing.

Historically, the potash industry’s mining leases have been protected from oil and gas drilling by the federal Bureau of Land Management, although some drilling has been allowed.

But both Foote and Purvis said the oil and gas industry has begun to increase pressure to allow more drilling in the area.

“The biggest issue we face continues to be conflict between the oil and gas industry and the potash industry,” Foote said. “Oil and gas would love to go out there and drill through our reserves. If they were to drill through our reserves, there is a higher likelihood the reserves would be lost. We could not mine them because of safety concerns.”

Foote said previous drilling in the reserves has been done in a way that hasn’t put potash companies out of business, but that could change if the oil and gas companies get their way.

“There is a potential for a catastrophe,” Purvis said. “It could jeopardize many lives.”

Supplies of potash, like most natural resources, are not limitless.

“Our reserves are substantial. Intrepid owns the largest block of untapped reserves in the basin,” Foote said. “At our current mining rate, we probably have 80 years of reserves left.”

Mosaic’s remaining potash reserves are less.

According to a quarterly publication from the company, its Carlsbad langbeinite reserves are sufficient to last for more than 20 years at the current rate of production. Its sylvite reserves are sufficient to run operations for 10 years at the current rate.

The company reported that it is evaluating options to extend the life of its operations. Purvis explained Mosaic could possibly acquire more area potash reserves.

“Our goal going through that period will be looking towards options to expand our reserve base,” he said.

There is still some uncertainty about how long the high prices for potash will last.

Purvis said that there wouldn’t be much of a change in the foreseeable future with a worldwide demand growth rate of more than 4 percent annually, despite companies taking steps to increase production.

“The growth is being done responsibly,” he explained. “There are fairly small additions coming on. In a huge market, I think the capacity additions are prudent at this time to keep up with demand growth in the next four or five years.”