You clearly did a tremendous amount of work. If I understood correctly (and I'm not a mining analyst so likely not), you noted 3 points.
1) After tax CF will be ~$150M to $200M after ramp up
2) Mines like trade below 1x NAV
3) NAV is ~$920M at 8% discount rate
My question is - Is it better to buy now instead of upon production commencement?
It seems like there are two buckets - pre and post operating - with very different risk reward structures. The first bucket sounds like taking construction risk and the second is the selling of salt which, as you detail quite robustly in your report, is a pretty steady business.
Thanks for your feedback, I really appreciate it! Great question. I’m glad I can amortize a little more of all the time spent on this thesis.
First, I would add a nuance to point 2).
The majority of mining companies trade below 1x NAV, but in some cases they do trade above it. The usual reason is a strong move in the underlying commodity. The other reason is that the market starts giving value to resources that are not included in the NAV.
As for the salt price, I find that very unlikely. But it is possible that, once in production, Atlas trades above 1x NAV. The most plausible case would be that Atlas realizes it can keep mining the first level much further than what the UFS assumes, and starts proving it. That is still far away. Until they are further into production, or have drilled more holes, it remains speculation. That is why I did not mention it in the piece.
On your question, I think you described the situation very well.
I assume you do not have a strong preference for one type of risk over another, and that what matters most to you is simply the risk/reward, regardless of whether the risk is small or large.
Historically, and if we use the Lassonde Curve as a rough framework, the best risk/reward opportunities over the remaining life of Great Atlantic Salt should be a little before construction starts (so approximately 2026) and then again a little before production, when long-time holders are tired of waiting and cash-flow investors/institutions are still waiting for the first tonne to be sold.
If we add the “people do not know/understand the company/sector” component to the equation, which to me is one of the reasons Atlas trades at such a discount to riskier mining peers at the same stage, the answer can tilt toward “now” if we assume that this lack of understanding will disappear. I think it probably will, especially given how active the CEO has been over the last few months, with one conference after another.
In any case, that is the reasoning that made me not wait. I think the probability of being better compensated for the risk I am taking is higher now than if I wait for production, or even pre-production. But also, and maybe more importantly, I am willing to take the extra risks attached to those potential extra returns.
But I cannot objectively say “now is better” for everyone. It depends on risk tolerance, and on the type of risk you are willing to take.
I do not want to finish only on the bullish arguments. So to balance it, let me say that I think the risk of permanent capital loss is higher now than it would be in pre-production or once in production.
I totally get it. Mining investors can be very conservative and sometimes wait for actual CF before giving the thesis any credit.
But those are often precisely the setups where rerates can be the most violent, provided the mine actually gets built. That’s the main risk here, imho. But I think the potential reward more than compensates for it, though it obviously doesn’t eliminate it.
Never seen my iPhone 17 lag as when I opened this article haha. Hopefully there are as many Kilotons of salt in that mine as there are characters in this writeup 😩
You clearly did a tremendous amount of work. If I understood correctly (and I'm not a mining analyst so likely not), you noted 3 points.
1) After tax CF will be ~$150M to $200M after ramp up
2) Mines like trade below 1x NAV
3) NAV is ~$920M at 8% discount rate
My question is - Is it better to buy now instead of upon production commencement?
It seems like there are two buckets - pre and post operating - with very different risk reward structures. The first bucket sounds like taking construction risk and the second is the selling of salt which, as you detail quite robustly in your report, is a pretty steady business.
Again, tremendous work. Well done!
Thanks for your feedback, I really appreciate it! Great question. I’m glad I can amortize a little more of all the time spent on this thesis.
First, I would add a nuance to point 2).
The majority of mining companies trade below 1x NAV, but in some cases they do trade above it. The usual reason is a strong move in the underlying commodity. The other reason is that the market starts giving value to resources that are not included in the NAV.
As for the salt price, I find that very unlikely. But it is possible that, once in production, Atlas trades above 1x NAV. The most plausible case would be that Atlas realizes it can keep mining the first level much further than what the UFS assumes, and starts proving it. That is still far away. Until they are further into production, or have drilled more holes, it remains speculation. That is why I did not mention it in the piece.
On your question, I think you described the situation very well.
I assume you do not have a strong preference for one type of risk over another, and that what matters most to you is simply the risk/reward, regardless of whether the risk is small or large.
Historically, and if we use the Lassonde Curve as a rough framework, the best risk/reward opportunities over the remaining life of Great Atlantic Salt should be a little before construction starts (so approximately 2026) and then again a little before production, when long-time holders are tired of waiting and cash-flow investors/institutions are still waiting for the first tonne to be sold.
If we add the “people do not know/understand the company/sector” component to the equation, which to me is one of the reasons Atlas trades at such a discount to riskier mining peers at the same stage, the answer can tilt toward “now” if we assume that this lack of understanding will disappear. I think it probably will, especially given how active the CEO has been over the last few months, with one conference after another.
In any case, that is the reasoning that made me not wait. I think the probability of being better compensated for the risk I am taking is higher now than if I wait for production, or even pre-production. But also, and maybe more importantly, I am willing to take the extra risks attached to those potential extra returns.
But I cannot objectively say “now is better” for everyone. It depends on risk tolerance, and on the type of risk you are willing to take.
I do not want to finish only on the bullish arguments. So to balance it, let me say that I think the risk of permanent capital loss is higher now than it would be in pre-production or once in production.
I hope this helps.
Very compelling investment. My biggest concern would be opportunity cost. However the asymmetry could compensate
I totally get it. Mining investors can be very conservative and sometimes wait for actual CF before giving the thesis any credit.
But those are often precisely the setups where rerates can be the most violent, provided the mine actually gets built. That’s the main risk here, imho. But I think the potential reward more than compensates for it, though it obviously doesn’t eliminate it.
Never seen my iPhone 17 lag as when I opened this article haha. Hopefully there are as many Kilotons of salt in that mine as there are characters in this writeup 😩