OCI Resources, LP (OCIR), the soda ash and trona ore mining Partnership plans to raise $100 million this week through upcoming Goldman Sachs (NYSE:GS) and Citi (NYSE:C) lead IPO. This IPO will be the first significant IPO after the Labor Day summer break.
The Atlanta, Georgia firm is expected to offer five million shares at a price between $19 and $21. Assuming a price of $20, OCI Resources' should command a market value of $400 million. OCIR is expected to be listed on NYSE on Friday, September 13.
OCIR filed on July 8, 2013.
Joint Managers: Top Tier Firms: Citi, Goldman Sachs
Co-Managers: Barclays, Credit Suisse
OCI Resources is technically a new entity established in 2013; however, its predecessor company had been in operation since 1962, and the facility that OCI Resources uses has been in operation for over half a century. It is a trona ore and soda ash production company headquartered in Atlanta, GA with operations in Wyoming.
The most attractive elements of the IPO is the significant yield which investors are craving for in this low rate environment, stable customer relationships, experienced management team and cost advantage of producing Soda Ash from trona.
OCIR's established parent (OCI Chemical) and lengthy history of solid operations give it a strong likelihood of continuing stability. While its revenues will always be dependent on the global demand for soda ash, which can often fluctuate, its process of producing soda ash from trona is amongst the world's most efficient, and there's little risk of a massive decline of demand since soda ash is used in the production of staples like glass and paper.
The company has an extensive base of over 75 customers including glass manufacturing companies like Owens-Illinois (NYSE:OI) and Guardian Industries and chemical and manufacturing companies like Procter and Gamble (NYSE:PG) and Church and Dwight (NYSE:CHD).
OCIR is offering an impressive cash payment of $0.50 per quarter per unit; if the shares hit the midpoint of their price range, this would translate into a 10% annual pre-tax yield.
I would rate OCIR a strong buy if the deal prices within the range of $19 to $21, especially for those investors seeking substantial income generated by their units.
The dependency on a single product - soda ash - which has something of a history of price fluctuation is concerning on the surface, but the shares should perform well, or at least with stability, over time because of the company's wide customer base.
Several recent IPOs that have promised high distributions such as Phillips 66 (NYSE:PSXP)) and NRG Yield (NYSE:NYLD) have been outstanding performers during the recent past few months. An annual 5% increase in demand for soda ash is expected through 2017. An approximately 10% annual yield should perk up many investors' ears, which should in turn lead to an increasing share price for OCIR as the quarterly payments are made.
Mining is by nature an extremely dangerous business. Some 177 miners were killed on the job in 2012, and far more were struck ill or non-fatally injured. OCIR does appear to take safety very seriously, which indicates a reduced risk of sudden price drops as a result of injury news - one of the most troubling dangers of mining shares.
Another risk in mining stocks is the chance that a mine will run dry, but OCIR's facility has sufficient proven reserves of trona available to sustain operations for another 33 years, with additional probable reserves to sustain an another 35 years. For at least the next two decades, OCIR's stock value should not suffer from concerns about declining mineral resources.
OCI Chemical and OCI Wyoming will be responsible for the bulk of management. Kirk Milling is the President and CEO of OCI Chemical; he has over 25 years of experience as an executive in the chemical field, including 15 years with OCI Chemical. He has been President and CEO since 2009. He holds both an MBA and a BS in Biochemistry - in other words, an executive who understands his company's product.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Potential investors should read the prospectus and consult their financial adviser before making any investments. This article was written for informational purposes.