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.
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.
Posts like this are why I love Substack. Not because every thesis will be right, but because thoughtful, high-conviction research like this forces you to think better as an investor. Really impressive work.
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.
Thanks for your feedback, I really appreciate that.
On pricing the execution risk, yeah that's the big variable. This is a killer thesis that could take 4 years or more to play out. But that's also a risk tied to a potential reward. Here it really depends on the investor's profile I guess.
On single product risk though, I'm a bit less worried. We're talking about a resource that's been used for decades, with steady demand short-term and growing demand long-term, plus a structural deficit that requires importing a quarter to a third of it every year. In the resources space specifically, that's actually even more of a plus given Atlas Salt has projected margins (per the PFS) that are nearly unmatched in the sector. It'll just need to compete on cost and "beat out" the priciest supply.
On diversification, I can confirm Atlas Salt is pretty much uncorrelated with the broader market (though that's not unusual for micro caps that aren't in almost any ETF).
I hadn't thought about the DCA angle, that's actually a really interesting idea for this setup. Thanks for sharing all of this.
Thank you UD, I just took the time to read your article. This is an amazing effort, I have to say. Congrats to you for your abilities! The modeling you did would have been way too hard for me. Directionally, I totally get your assessment. The 2% vs 4% cagr salt price assumption is key, as is the upside for all the salt being sold at higher prices. I think you should have modeled the upside for the salt being sold at higher prices more aggressively in your bull scenario, because it appears to be a real possibility. Just to give interested readers a feel for the range of possibilities. I liked your detailed and honest view about costs and dilution. One issue I have, in general, with the way NPVs are done, is the mine life. I don’t think it is logical to give basically no value to the potential years of production after the initial 24 years or so. See Brian Daltons argument and all the major mining companies (Vale, Rio Tinto etc) with those long term assets that produce for half a century. As commodity prices rise, you will have much more than terminal value. That’s when the initial capex is paid back, and it does matter for how much longer you get those cashflows. Of course, this applies to royalties more than to anything, since they are immune from cost increases. I like your angle of playing this, great find (and won’t give it away since it’s paywalled). Impressive work. Congrats again.
And, I would like to challenge you, though, in a kind way, since you write this presents one of the best, if not the best risk reward setup of your career. I still believe that the setup I am writing my current article about is an even more compelling asymmetric setup, has less downside risk than your idea presented here, while the upside potential is similar if not better. Even though I have to say, your opportunity inside the opportunity adds a layer of risk protection, so comparing this angle with my current idea gives me a much more even picture.
I am really curious to hear your thoughts about all that at a later point.
I find it hard, though, to write my thesis down.
So, again, tremendous effort, you have my respect.
Congrats!
I am curious: For how long have you been doing this? Have you worked in financing mines?
First off, thanks for taking the time to read and write all that (and also for opening the valuation model, less than 1% of readers do!). And thanks a lot for your kind words. I really appreciate that, believe me.
Let me start from the end: I've been investing for 10 years, 5 of them full-time. But I've never actually worked in the industry (finance or mining).
I totally get your point about my modeling choices, honestly, it's a comment I'm glad to get. But I'm a shareholder talking to potential shareholders. I owe myself a certain restraint on bullish assumptions that others don't necessarily need (an M&A analyst, for instance). I was clearly putting my credibility on the line by spelling out how exceptional this setup is, so I couldn't afford to stack too many bullish assumptions on top of that, especially since the setup doesn't even need them!
That's why in my bull case I only used a 5% CAGR for the price of salt, nothing higher (even though 5% is already above the historical trend). That's also why I didn't assign any value to the potential resources not captured in the PFS. Your point about terminal value is actually even more true for salt, where it's likely the mine survives decades beyond the initial 24 years, and where the structure of salt pricing itself largely offsets the discounting of that post-24-year value (so you don't end up drowning the value of those resources under successive rounds of discounting). If I had factored that in, even with a heavy cutoff, the final valuation would have jumped into a different category entirely.
But I'm a shareholder, and my job is to analyze all of this with a heavy focus on the risk/reward ratio. I couldn't include it without inviting justified criticism for cherry-picking favorable assumptions. That said, if Great Atlantic Salt gets acquired, I'm counting on management to make the case for that upside (particularly the resources outside the PFS) when negotiating the deal price!
It looks like you either had access to, or guessed, what the "setup within the setup" was. I'm not sure it's better that I know how, but the fact that you stated it with such certainty makes me think the odds you just guessed it are pretty low. Either way, if that's what happened and you took the risk of writing your message with that level of confidence, well played!
As for your own setup, you're setting the bar very high. I like that! I don't know what your goals are on Substack, but as a fellow investor who didn't write up his theses in this kind of detail before starting the Substack (it used to just be notes), I think the personal upside of putting everything into a structured piece of writing is huge. It takes a lot of time, no doubt. But the trade-off is well worth it imo, and I regret not having started sooner, even just for myself.
thank you for the detailed answer, I really appreciate that.
Good to hear your response to my questions and points.
I have to say, it makes me lean even a little bit more towards the
bullish side with regard to Atlas Salt.
One thought about being conservative with one’s estimates. It obviously pays for a management team to be a little bit conservative and beat guidance.
As it pays in many other areas of life - underpromise, overdeliver.
I understand why you would want to do that in your article.
However, I do think it is important as an investor to get a realistic view - the bear case, base case, and the full bull case.
Why?
Because looking at those numbers will ultimately determine whether someone may initiate doing their own research, initiate a position or take a larger position.
In other words, being conservative with the numbers for the bull case (which we all know is not the base case, it’s optionality) may lead to missing an opportunity.
I look for investments with high optionality (amazing bull case) and good or great base and bear case. But the high optionally is really key, one such winner can make a big difference.
About your angle - I guessed it. I would be very far from getting the information any other way. Once you mentioned that there was a better angle to play this (I believe I read it in a note or while scanning your article, so before reading it in depth) I immediately had one idea how to do that. I checked, and yes, there it is. Your title of the paywalled post later confirmed my finding and calculation. So I am 99.9% percent sure we are talking about the same thing, not 100%. But I don’t see any other option.
The part of your response where you spoke about the benefit of writing had an impact on me. I find that encouraging. Thank you for sharing your experience.
I am curious how these investments and the journey and Substack will play out.
They can indeed base their decisions on what I say, but that's exactly why I spell out what I leave out of the model or not, why I stay conservative or not.
If someone bases their decision only on the final numbers, that's potentially drowned out some alpha, sure, but that would be a mistake on their part.
A model only makes sense once you understand how it was built, giving them the ability to make it their own. If they want to add this or that variable, tweak it their way, that's on them. My job is to give them the tools to make their own decision and to describe how I built those tools (arguments, models, etc.).
For example, in my latest deep dive, I left the time horizon out of the model, because it let me justify pretty much anything: overvaluing or undervaluing. So I explicitly left it out and stressed that it was a variable for them to set based on their own situation, while showing the dangers of that variable.
That said, it probably hasn't stopped me from making omissions. The bulk of the difficulty in this kind of writing is compressing complexity that turns hundreds of hours of work into a few hours of reading. Obviously some relevant information disappears in that compression, but without using that as an excuse, it's undeniably unavoidable. I'm sure you face that same problem too.
Thanks for the clarification on the second angle. Well played!
More seriously, nothing I think. Volume is high but nothing exceptional either. I couldn't find any news that would justify this, and the market had already opened pretty much in the red before losing a bit more into the close. Pretty typical zealous profit-taking on a volatile day, especially with miners getting hit hard across the board. That's my best guess.
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.
Posts like this are why I love Substack. Not because every thesis will be right, but because thoughtful, high-conviction research like this forces you to think better as an investor. Really impressive work.
Thanks a lot, really appreciate that!
As a contractor using the product it’s nice to see correlation ‘on the ground ‘
Value post mine performance?
Not sure I fully follow, are you asking what the company is worth once the mine reaches full ramp-up?
That's correct but I've since answered that question based on your writeup
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.
amazing level of details.
any question i could raise was answered soon after.
thanks for that.
the problem with a business that basically create a single product - is the inherent risk of single-point-of-failure.
the problem with a business that should take ~4 year to deliver first product - is the ability to price execution risk correctly.
i think that having that as part of a portfolio (diversification) mitigates the first risk.
i think that dollar-cost averaging into a position can mitigate the latter.
thanks for the investing idea !
Thanks for your feedback, I really appreciate that.
On pricing the execution risk, yeah that's the big variable. This is a killer thesis that could take 4 years or more to play out. But that's also a risk tied to a potential reward. Here it really depends on the investor's profile I guess.
On single product risk though, I'm a bit less worried. We're talking about a resource that's been used for decades, with steady demand short-term and growing demand long-term, plus a structural deficit that requires importing a quarter to a third of it every year. In the resources space specifically, that's actually even more of a plus given Atlas Salt has projected margins (per the PFS) that are nearly unmatched in the sector. It'll just need to compete on cost and "beat out" the priciest supply.
On diversification, I can confirm Atlas Salt is pretty much uncorrelated with the broader market (though that's not unusual for micro caps that aren't in almost any ETF).
I hadn't thought about the DCA angle, that's actually a really interesting idea for this setup. Thanks for sharing all of this.
Thank you UD, I just took the time to read your article. This is an amazing effort, I have to say. Congrats to you for your abilities! The modeling you did would have been way too hard for me. Directionally, I totally get your assessment. The 2% vs 4% cagr salt price assumption is key, as is the upside for all the salt being sold at higher prices. I think you should have modeled the upside for the salt being sold at higher prices more aggressively in your bull scenario, because it appears to be a real possibility. Just to give interested readers a feel for the range of possibilities. I liked your detailed and honest view about costs and dilution. One issue I have, in general, with the way NPVs are done, is the mine life. I don’t think it is logical to give basically no value to the potential years of production after the initial 24 years or so. See Brian Daltons argument and all the major mining companies (Vale, Rio Tinto etc) with those long term assets that produce for half a century. As commodity prices rise, you will have much more than terminal value. That’s when the initial capex is paid back, and it does matter for how much longer you get those cashflows. Of course, this applies to royalties more than to anything, since they are immune from cost increases. I like your angle of playing this, great find (and won’t give it away since it’s paywalled). Impressive work. Congrats again.
And, I would like to challenge you, though, in a kind way, since you write this presents one of the best, if not the best risk reward setup of your career. I still believe that the setup I am writing my current article about is an even more compelling asymmetric setup, has less downside risk than your idea presented here, while the upside potential is similar if not better. Even though I have to say, your opportunity inside the opportunity adds a layer of risk protection, so comparing this angle with my current idea gives me a much more even picture.
I am really curious to hear your thoughts about all that at a later point.
I find it hard, though, to write my thesis down.
So, again, tremendous effort, you have my respect.
Congrats!
I am curious: For how long have you been doing this? Have you worked in financing mines?
First off, thanks for taking the time to read and write all that (and also for opening the valuation model, less than 1% of readers do!). And thanks a lot for your kind words. I really appreciate that, believe me.
Let me start from the end: I've been investing for 10 years, 5 of them full-time. But I've never actually worked in the industry (finance or mining).
I totally get your point about my modeling choices, honestly, it's a comment I'm glad to get. But I'm a shareholder talking to potential shareholders. I owe myself a certain restraint on bullish assumptions that others don't necessarily need (an M&A analyst, for instance). I was clearly putting my credibility on the line by spelling out how exceptional this setup is, so I couldn't afford to stack too many bullish assumptions on top of that, especially since the setup doesn't even need them!
That's why in my bull case I only used a 5% CAGR for the price of salt, nothing higher (even though 5% is already above the historical trend). That's also why I didn't assign any value to the potential resources not captured in the PFS. Your point about terminal value is actually even more true for salt, where it's likely the mine survives decades beyond the initial 24 years, and where the structure of salt pricing itself largely offsets the discounting of that post-24-year value (so you don't end up drowning the value of those resources under successive rounds of discounting). If I had factored that in, even with a heavy cutoff, the final valuation would have jumped into a different category entirely.
But I'm a shareholder, and my job is to analyze all of this with a heavy focus on the risk/reward ratio. I couldn't include it without inviting justified criticism for cherry-picking favorable assumptions. That said, if Great Atlantic Salt gets acquired, I'm counting on management to make the case for that upside (particularly the resources outside the PFS) when negotiating the deal price!
It looks like you either had access to, or guessed, what the "setup within the setup" was. I'm not sure it's better that I know how, but the fact that you stated it with such certainty makes me think the odds you just guessed it are pretty low. Either way, if that's what happened and you took the risk of writing your message with that level of confidence, well played!
As for your own setup, you're setting the bar very high. I like that! I don't know what your goals are on Substack, but as a fellow investor who didn't write up his theses in this kind of detail before starting the Substack (it used to just be notes), I think the personal upside of putting everything into a structured piece of writing is huge. It takes a lot of time, no doubt. But the trade-off is well worth it imo, and I regret not having started sooner, even just for myself.
Anyway, thanks again for taking all this time!
Hi UD,
thank you for the detailed answer, I really appreciate that.
Good to hear your response to my questions and points.
I have to say, it makes me lean even a little bit more towards the
bullish side with regard to Atlas Salt.
One thought about being conservative with one’s estimates. It obviously pays for a management team to be a little bit conservative and beat guidance.
As it pays in many other areas of life - underpromise, overdeliver.
I understand why you would want to do that in your article.
However, I do think it is important as an investor to get a realistic view - the bear case, base case, and the full bull case.
Why?
Because looking at those numbers will ultimately determine whether someone may initiate doing their own research, initiate a position or take a larger position.
In other words, being conservative with the numbers for the bull case (which we all know is not the base case, it’s optionality) may lead to missing an opportunity.
I look for investments with high optionality (amazing bull case) and good or great base and bear case. But the high optionally is really key, one such winner can make a big difference.
About your angle - I guessed it. I would be very far from getting the information any other way. Once you mentioned that there was a better angle to play this (I believe I read it in a note or while scanning your article, so before reading it in depth) I immediately had one idea how to do that. I checked, and yes, there it is. Your title of the paywalled post later confirmed my finding and calculation. So I am 99.9% percent sure we are talking about the same thing, not 100%. But I don’t see any other option.
The part of your response where you spoke about the benefit of writing had an impact on me. I find that encouraging. Thank you for sharing your experience.
I am curious how these investments and the journey and Substack will play out.
I appreciate the pushback.
They can indeed base their decisions on what I say, but that's exactly why I spell out what I leave out of the model or not, why I stay conservative or not.
If someone bases their decision only on the final numbers, that's potentially drowned out some alpha, sure, but that would be a mistake on their part.
A model only makes sense once you understand how it was built, giving them the ability to make it their own. If they want to add this or that variable, tweak it their way, that's on them. My job is to give them the tools to make their own decision and to describe how I built those tools (arguments, models, etc.).
For example, in my latest deep dive, I left the time horizon out of the model, because it let me justify pretty much anything: overvaluing or undervaluing. So I explicitly left it out and stressed that it was a variable for them to set based on their own situation, while showing the dangers of that variable.
That said, it probably hasn't stopped me from making omissions. The bulk of the difficulty in this kind of writing is compressing complexity that turns hundreds of hours of work into a few hours of reading. Obviously some relevant information disappears in that compression, but without using that as an excuse, it's undeniably unavoidable. I'm sure you face that same problem too.
Thanks for the clarification on the second angle. Well played!
Hi UC,
thank you, that’s a fair point you’re making.
True, each of us needs to understand the thesis and develop our own perspective before we can make an investment decision.
Thus each person can model any potential additional upside for themselves.
And you laid out the parameters clearly.
Thank you again, that’s been a very enriching conversation.
Seems like a long term structural supply issue as per your article
I’ve just heard from my deicing salt supplier that prices are steadily climbing in Ontario now and allocations per brokers are going down
Interesting!
Are you a private contractor? Did he put a number on the “down”?
The season started rough, looks like it'll end on the same note.
He hasn’t gotten back to me with pricing yet but it doesn’t look good (for buyers of salt )
im not reading allat 😭😭😭
Any idea what the heck happened today? A 15% drop and I see no news anywhere.
My bad, I added an extra 0 taking profits.
More seriously, nothing I think. Volume is high but nothing exceptional either. I couldn't find any news that would justify this, and the market had already opened pretty much in the red before losing a bit more into the close. Pretty typical zealous profit-taking on a volatile day, especially with miners getting hit hard across the board. That's my best guess.