Cheryl Maguire : $10 million to $12 million of stock, yeah.
Mark Behrman : Of stock, so I think we’ve allocated about $125 million to buy back a combination of debt and stock. And then we’ll kind of take a breather there, see where we are, see where some of our projects are and what our cash needs are. And then we’ll make a decision on whether we move forward with continued purchases or not.
Adam Samuelson : All right, that’s really helpful. I’ll pass it on, thank you.
Mark Behrman : Yeah.
Operator: Thank you, next question is coming from David Begleiter from Deutsche Bank. Your line is now live.
David Begleiter : Thank you, good morning. Mark, just looking at natural gas prices, how are you thinking about taking advantage of these lower prices over the longer term?
Mark Behrman : Well, you know, it’s a great question and we debate this internally and we’ve debated it for the last five years. We seem to want to take some, we’ve tried taking some, I call it forward purchases because they’re not really hedges. And we’ve won some of them and last year, unfortunately, we actually lost in a big way, right? We lost the potential for call it $40 million based on locking in at higher prices when the actual prices were somewhat lower. So I think we’re taking the position right now that we lock in, we make sure that we have enough gas at the beginning of every month to lock in 90% of our gas needs. And that’s combined with, if we have any forward purchases of product, primarily on the fertilizer side where we lock in the gas to lock in our margin there.
If we’ve got any customers on the industrial side, since they’re primarily gas pass-through that want to lock — wanted to lock it in, which doesn’t happen very often, very infrequent actually, we’ll lock that in as well. But going in and purchasing forward to really make a bet on where natural gas prices are going to be, there’s a lot of conflicting views in the marketplace on prices going up, come towards the end of this year and into next year. And then you read a whole lot of other conflicting views on how much natural gas is actually coming out of the ground and of course, we’ve got LNG issues and what’s going on there. So I think our strategy right now is to continue to buy primarily first of the month to lock in that gas. And then we’re starting to think about the winter and do we actually hedge or buy forward some gas in the winter where it can be somewhat more volatile.
David Begleiter : Understood. And just on the buying debt versus stock, how do you decide the use of what’s more beneficial to you guys, stock or debt at any point, any time? Thank you.
Mark Behrman : Well, I think first, we’ve — Cheryl’s been pretty public in saying that our target is 2.5 times leverage. And so we say 2.5 times leverage on mid-market EBITDA, which is the $200 million that Cheryl referred to earlier. So that would be $500 million. So we’re pretty much at $500 million with that $75 million repurchase of debt. You know, to make ourselves a bit more bulletproof and to allow us to continue to weather any storms and also fund capital projects, I think we would consider delivering somewhat more just to give more comfort, right? We’re in a somewhat volatile industry where pricing can move relatively quickly and the last thing we want to do is ever be in an over-levered position. So I think that’s the first thing we think about.
When we think about debt, we’re lucky enough that we certainly have enough cash and liquidity that we can do both debt and stock. And right now, I hope I’m not going out there on a limb, but I think we all believe that our stock is pretty undervalued. So I think that buying back some stock at these levels makes a lot of sense for us.
David Begleiter : Thank you very much.
Operator: Okay, the next question today is coming from Andrew Wong from RBC Capital Markets. Your line is now live.
Andrew Wong : Hey, good morning. Thanks for taking my questions. Could you just maybe talk about your view on ammonium nitrate prices and going forward, it seems like the premiums have come down a little bit versus urea, maybe just what’s driving that and could we see that rebound going forward?
Damien Renwick : Yeah, good morning, Andrew. I think you’ll see a little bit of rebound going forward as we get into more application and some of that natural demand for AN comes through. But in terms of some of those trends, I think there’s been some changes in demand in the marketplace. And so what we tend to see is that if pricing for AN gets too high, then you’ll start to incentivize and switching to urea. So we’re constantly sort of working against some of those dynamics. But I think we’re happy with where things are at right at this very minute.
Andrew Wong : Okay, thank you. And then, let me just talk about the collaboration with Amogy, I think I’m seeing that right. Looks like initial testing is in Q3, what is the opportunity for LSB around that if it’s a successful test?
Mark Behrman : Well, look, I think one of the things that people are now starting to really talk about when we’re talking about, you know, low-carbon development and this whole energy transition is we can build all the facilities we want, but it’s really going to be demand-driven. And I think when we started our conversations with Amogy and talking about how we can work together, so they’ve got, a system Power-to-X, that allows people to basically convert existing engines to run on ammonia because they’ve got ammonia to a fuel cell, fuel cell to hydrogen and hydrogen into the engine. So part of what we talked about was really working together to develop the inland marine marketplace here in the United States. That’s a big market, a lot of vessels going up and down the rivers, a lot of dirty fuel used.
And so for them to sell systems, there needs to be the availability of low-carbon ammonia. And for us to sell low-carbon ammonia into that marketplace, there needs to be engines that could run on that. So it really, it’s kind of like hand and glove in the way that it fits. So we’re really working with them to try and develop that market and really work with Washington to really understand the opportunity and work with U.S. Coast Guard to get them to understand what it would take and get the right permitting. And I think that’s why, I believe that’s why their test has been delayed, which was supposed to happen towards the end of last year, is that it’s, you know, taken longer to educate, you know, the political scene and as well as Coast Guard.
