OCI Resources (OCIR) expects to pay a 10% at the price range mid-point of $20.  After investors receive an annual return of 11.5% at the price range mid-point of $20, OCIR receives up to 48% of the excess cash generated

Nine IPOs are scheduled for next week, the week of September 16. The full IPO calendar can be found at IPOpremium.

Based in Atlanta, Georgia, OCI Resources LP  (OCIR) scheduled a $100 million IPO with a a market capitalization of $413 millin at a price range mid-point of $20, for Friday, September 13, 2013.

OCIR S-1 filed September 3, 2013

The Manager, Joint Managers are Citigroup; Goldman.  The cooo-managers are  Barclays; Credit Suisse.

Summary

OCIR is a LP spin-off of a 50 year-old company, to operate the trona ore mining and soda ash production business of OCI Wyoming.

OCIR is ran at 98.6% capacity for the 12 months ended December, 2012, and ran at 95.2% capacity for the six months ended June, ’13.

OCIR plans to pay $39.9 million in minimum yearly distributions, which is a 10% return at the price range mid-point of $20. 

After investors receive an annual return of 11.5% at the price range mid-point of $20, OCIR receives up to 48% of the excess cash generated.  See ‘incentive distribution rights’ below.

Valuation

Compare

IPO Mrkt

Price /

Price /

Trade Commission-FREE with Tradier Brokerage

Price /

Price /

Distribution

yr ended 6/13

Cap (mm)

Sls

Erngs

BkVlue

TanBV

Yield

OCI Resources LP  (OCIR)

$413

0.9

4.0

3.9

3.9

10.0%

Hi-Crush Partners LP (HCLP)

$677

7.7

13.3

4.8

10.0

8.1%

 Glossary

Conclusion

OCIR’s 10% return at the price range mid-point looks attractive to retail investors, but there appears to be limited growth based on current plant capacity.

The rating on OCIR is neutral to a buy. 

Business

OCIR is a Delaware limited partnership formed by OCI Holdings to operate the trona ore mining and soda ash production business of OCI Wyoming.  OCIR owns a controlling 40.98% general partner interest and 10.02% limited partner interest in OCI Wyoming.  OCI Wyoming, which is one of the largest and lowest cost producers of soda ash in the world, serving a global market from a facility in the Green River Basin of Wyoming.  

The facility has been in operation for more than 50 years.

Reserves

As of March 31, 2013, OCI Wyoming had proven and probable reserves of 267.1 million short tons of trona, which is equivalent to 145.5 million short tons of soda ash. During the year ended December 31, 2012, OCI Wyoming mined approximately 3.87 million short tons of trona and produced approximately 2.45 million short tons of soda ash. During the six months ended June 30,

2013, OCI Wyoming mined 1.95 million short tons of trona and produced approximately 1.20 million short tons of soda ash.

Based on a projected mining rate of 4.0 million short tons of trona per year, OCI Wyoming has enough proven and probable trona reserves to continue mining trona for approximately 67 years.

About the ‘parent’

1962     Stauffer Chemical opens Big Island Mine and Refinery in Green River, WY and produces soda ash from the mined trona.

1985     Chesebrough Ponds acquires Stauffer Chemical.

1986     Imperial Chemical Industries (ICI) buys Stauffer Chemical from Chesebrough Ponds, which had been taken over by Unilever.

1987     ICI sells Stauffer’s industrial chemicals section (soda ash business) to Rhone Poulenc.

1996     Rhone Poulenc sells its interest in soda ash to OCI Company, Ltd. The new North American subsidiary is named OCI Chemical.

1998     OCI Chemical Europe N.V. is established in Antwerp, Belgium.

2001     OCI Chemical starts up new sodium percarbonate plant in Decatur, AL.

2006     OCI and Eka Chemical Inc. form a joint venture, EkO, to produce and sell hydrogen peroxide in Columbus, MS.
http://www.ocichemical.com/index.php/history

Cash distribution policy

Upon the closing of the IPO, OCIR’s partnership agreement will provide for a minimum quarterly distribution of $0.50 per unit for each complete quarter, or $2.00 per unit, or $39.9 million per year.   On an annualized basis, it’s a 10% return at the price range mid-point of $20.

General partner

Initially, the 2% general partner will be entitled to 2.0% of all distributions made prior to liquidation. In the future, the general partner’s initial 2.0% interest in these distributions may be reduced if OCIR issues additional units and the general partner does not contribute a proportionate amount of capital to  maintain its 2.0% general partner interest.

Incentive distribution rights

The general partner will also be the initial holder of all incentive distribution rights. These incentive distribution rights entitle the holder to increasing percentages, up to a maximum of 48.0%, of the cash  distributed in excess of $0.5750 per unit per quarter, which is an 11.5% return at the price range mid-point of $20.

During the subordination period, before OCIR makes any quarterly distributions to subordinated unitholders, common unitholders are entitled to receive payment of the full minimum quarterly distribution plus any arrearages in distributions of the minimum quarterly distribution from prior quarters

Competition

OCIR competes with both North American and international soda ash producers.

Against principal North American competitors, subsidiaries of FMC, Solvay and Tata in the Green River Basin and Searles Valley Minerals in California, OCIR believes it has a number of competitive advantages, including operational advantages that improve its relative cost position, life of mineral reserves, strong safety record, customer relationships and an experienced management team and workforce.

Against principal worldwide competitors, Solvay, Tata and Nirma Group, virtually all of their production is manufactured from synthetic processes and OCIR believes, as a producer of soda ash from trona, OCIR  has a significant competitive advantage, even after considering OCIR generally has higher logistics costs to move the soda ash from Wyoming to regions around the world.

This is because the costs associated with procuring the materials needed for synthetic production are greater than the costs associated with mining trona. In addition, OCIR believes trona-based production consumes less energy and produces fewer undesirable by-products than synthetic production.

Use of Proceeds

OCIR expects to net $88 million from its IPO. 

Proceeds are allocated to make a cash payment of $69.1 million to Wyoming Co. in exchange for contribution of its 10% limited partnership interest in OCI Wyoming to OCIR, and a distribution of $19 million to OCI Chemical.

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