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Published September 25, 2013, 09:12 AM

Northern Plains Nitrogen expands its shareholder offering for ND project

A company that plans to build a $1.7 billion fertilizer production plant in Grand Forks, N.D., is expanding its seed capital — or shareholder — drive to include farmers and others in the region, and beyond.

By: Mikkel Pates, Agweek

VALLEY CITY, N.D. — A company that plans to build a $1.7 billion fertilizer production plant in Grand Forks, N.D., is expanding its seed capital — or shareholder — drive to include farmers and others in the region, and beyond.

Darin Anderson, a Valley City, N.D., farmer and chairman of the managing partners for Northern Plains Nitrogen LLP, based in Grand Forks, confirmed that as of Sept. 23 the company was able to publicly offer its seed capital “unit” shares to people other than those closely linked to a small group of founding investors.

The plant is expected to use natural gas, presumably from the Bakken oil fields of western North Dakota. From the natural gas, the company will produce ammonia, urea and other value-added products.

The company has plans to be operational in 2017. Anderson says the purpose of the project is to ensure an adequate supply of nitrogen fertilizer for the Upper Midwest area of the United States and Canada and to offer a hedge for farmers and others against high nitrogen fertilizer prices.

In the seed capital drive, NPN is seeking at least $3 million and up to $9 million in seed capital — an amount that pays for site acquisition, research and engineering studies, and joint venture efforts, among other things. The offering timeframe is unspecific and at the discretion of the managing partners, who act as a board of directors.

Anderson confirmed that for the past several weeks the company had been able to offer equity units but only to a limited group. The earlier so-called “Regulation D” offerings were unadvertised and available to qualified investors with whom the board has a business relationship, or investors board members know personally. As of Sept. 23, others can qualify.

NPN is offering up to 1,800 seed capital units, or shares, available to accredited investors only. The price is $5,000 per unit, with a minimum of three units, or a minimum investment of $15,000 per investor, Anderson says. Once the project is fully funded, the seed capital units would each be worth three common shares.

The founder’s round brought in nearly $1.36 million, but that round is now closed. As is typical, that round will have a four-to-one return, but that was because there were more unknowns than there are now, Anderson says.

Accredited investors

To qualify as an accredited investor, a person must have $1 million in net worth or annual income of $200,0000 or more, or joint income with a spouse of $300,000 or more per year. The investors are likely to be primarily from North Dakota, Nebraska, South Dakota, Iowa and Minnesota, and as well as Canadian provinces.

Earlier, before the seed capital phase, the company founders invested an unspecified amount.

The seed capital investment is “at risk,” Anderson acknowledges. The company doesn’t promise any particular return-on-investment range, but Anderson says the company’s research indicates the historical industry average returns have been 10 to 15 percent annually. That return depends on many variables including the price of natural gas and price of fertilizer.

“Anyone in the United States could invest in this, but I think — just because of the location we’re at — people in the Northern Plains are going to be interested in investing in this because they’d be the producer or individual that is mostly affected by it,” Anderson says. “But that doesn’t mean a person in Texas couldn’t invest in it, just to hedge their nitrogen costs.”

The seed capital investment is intended to get the project to its next step, when future investors would consider investing at a theoretically less risky, stage.

“We expect farmers to put in a sizable amount,” Anderson says. If NPN achieves 40 percent equity on a $1.7 billion project, it would be about $700 million. Farmers might eventually invest up to $100 million in the project and the rest of the equity could come from other partners.

The next step

Retired Adm. William Owens of Kirkland, Wash., is a key member of the managing partners. Owens is a North Dakota native, a former four-star U.S. Navy admiral and vice chairman of the Joint Chiefs of Staff, and a North Dakota Roughrider Award recipient. Owens has military and business ties to potential partners around the world, including the China and the Middle East. International partners could bring competition to the North American market, which could be good for farmers, Anderson says. NPN also is looking at domestic partners.

The company hired an analyst firm, Blue, Johnson & Associates, of Albuquerque, N.M., to study the nitrogen fertilizer market.

Blue, Johnson told NPN that the U.S. imports more than half of its nitrogen fertilizer from other countries. The Northern Plains imports more than 70 percent of its urea fertilizer — the dry form of nitrogen — and a large portion of its liquid urea ammonia nitrate (UAN).

Anderson says if both NPN and competitor CHS Inc., of Inver Grove Heights, Minn., go forward with their separate plans to build plants in North Dakota, the two would not be able to satisfy the demand without relying on imports.

One key is the availability of natural gas from the Bakken.

“The nitrogen fertilizer business is a commodity business, just like grains,” Anderson says.”You have cycles of ‘boom’ and cycles of ‘bust,’ I guess you could call it.”

A long-term investment

Anderson says the investment should be considered long-term. Asked why the project didn’t team up with CHS, a mega-cooperative of farmer-owned cooperatives, Anderson says, “We talked to CHS over a year ago and at the time, we couldn’t see eye to eye on a few things so we decided to go our separate ways.”

More than two dozen North American companies have talked about expanding capacity. One of the furthest along is Orascom Construction Industries, based in Cairo, Egypt. OCI on Nov. 19, 2012, broke ground on a $1.4 billion plant in Wever, Iowa, a facility that reportedly would employ 2,500 during construction and 165 permanently. OCI has a target operation date of 2016 or 2017.

As of Sept. 25, Anderson says forms for the private placement memorandum will be available upon request through the company’s website at northernplainsnitrogen.com, or by contacting Anderson or other managing partners.

“What we’re hoping to do is attract people to meetings after the harvest, probably in November, so they can get all the details behind the project,” Anderson says.

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