Member Info for SGD27

In case that sounded unduly pessimistic, perhaps I should add that I reckon CS today is worth something like twice the value of Kirkland nearly two years ago when it was sold.

Hi 1investor, I'd be really interested to compare numbers - maybe I'll put my valuation notes together and post at the weekend. (Discussion tend to be calmer outside trading hours!)

One general point though - you say "if the CS Project is sold it will be sold at market value". But CS won't be bought for "what it's really worth" will it, because how would the buyer make a profit? Or maybe you've factored that into the PE ratio you've used?

When I look at the Borland-Kirkland deal, I reckon Borland paid about a quarter of what Kirkland will eventually be worth when up and running. On top of that they have the capital expense (and time delay) of getting from "permitted" to "operational", including the grinding facility.

Reaction here was that Boral got a bargain, and I think that's true to some extent. But from what I've seen looking at CRMC presentations and conference calls, they're under just as much pressure from their analysts and shareholders to drive hard bargains.

If we want to realise the "true" value of CS, we could try going it alone. But it might take a decade to fully realise that value, and I'm not sure investors here have that patience. So @Bazza-2015, good list, my guess is 3.

Lots of people want the waiting to come to an end, but would a deal today really give the best outcome?

Look at it from a CRMC's point of view, trying to plan for the next decade:

"Cemex’s chief financial officer Maher Al-Haffar predicted there would be 20 to 30 per cent higher demand for cement in the US if Biden’s infrastructure bill was passed..." *

It can't be easy to plan with that level of uncertainty. Do you commit to adding 500ktpa pozzolan capacity now, or wait a few months until the outcome of the bill is known, even that means paying a bit more for it?

And of course there's a second way in which the Biden bill might increase the value of CS. It includes $66bn earmarked for passenger and freight rail upgrades. It's not impossible that this could lead to the mooted Vegas-Tonopah-Reno railroad actually getting built, which by my calculation might improve CS margins by as much as 50%.

Unfortunately the bill timetable still seems vague, just "later this year". But it did pass a big milestone a couple of days ago, being approved by the US Senate.

Just a thought, while we're waiting...

* source: FT 09 Aug 2021
https://www.ft.com/content/41574f1e-58ae-4b17-a1ea-991a46d70932
(or google it if you hit a subscription wall)

PS Sorry about the pun (and not the first to come up with it)

A bit of follow-on research on the use of rail vs trucking. I hadn't really picked up on the fact that the Reno-Hawthorne railway, currently almost exclusively used by the Hawthorne Army Depot, already appears to be moving towards greater commercial use. A company called Top Rail Solutions is involved :

https://www.trsrail.com/hawthorne.html

If we're shipping to (or via) Reno, then this would convert 124 miles from trucking to rail. At 4 cents/ton-mile instead of 12 cents/ton-mile, this would save approximately $10 per ton.

Very sorry to hear this sad news.

On the off-chance my guess happened to be correct, and we're destined to become some sort of adjunct to Lehigh West, then I fear people's patience may be tested for a while yet. The acquisition by MM was announced on 24 May but is "Subject to customary regulatory approvals and closing conditions" & "Expected to close in the second half of 2021" *, so could still be months away. Until then we couldn't even be completely sure who we should be negotiating with, MM or the current owners, Heidelberg Cement Group (which incidentally does qualify as "internationally recognised", even if MM doesn't).

* Source:
https://ir.martinmarietta.com/static-files/9e0abcb6-7657-457a-a2aa-6dff40f838a0
which is a presentation giving a bit more detail on the Lehigh West acquisition.

@Terrafin : One reason we might both be wrong is that PC refers to "an internationally recognised cement and ready-mix concrete company" (HY Report 24/05/21). I believe Eagle & MM are almost entirely US focused (though MM does include Canada, the Bahamas and the Caribbean Islands). Holcim & Cemex would certainly fit that description though...

@Cavendish : ...as would Boral, except I'm not sure it qualifies for "ready-mix"?

Hi Terrafin,

We only have limited information to go on, but of course it's tempting to speculate.

Eagle would certainly be on my short list of four, along with Cemex, Holcim and Martin Marietta. There are plenty of other large CRMCs, but the ones I've looked at have not had a strong presence in Western USA.

I'd also consider two non-CRMC "wild cards" we've discussed here recently:
1. Boral, because of their fly ash specialisation (or whoever they sell their NA fly ash assets to, if that happens).
2. Progressive Planet, which is developing a recycled glass + natural pozzolan mix. They're a tiny company but with lofty ambitions.

If I was forced to bet on just one, I'd probably go for Martin Marietta. Various reasons:

1. Their attention is currently very focussed on our geographical region, having just acquired the Lehigh West Region assets.
2. Quote from Q2 results: "This acquisition also allows us to pursue future attractive and complementary bolt-on opportunities."
3. The Lehigh 'green' cement product is primarily fly ash based, so they're going to be facing the supply squeeze. I don't see any natural pozzolan in the Lehigh package.
4. They've shown a preference for acquisitions rather than development from scratch, and seem to appreciate value of permitting *
5. It would explain our delays - they have $2.3 billion worth of new assets to integrate before working out how a minnow like SRES might fit in.

So there would be some logic in it, but when did logic ever apply to AIM companies?!

I should stress again this is all just speculation based on very limited information. DYOR.

* see Slides 30 & 31 :
https://ir.martinmarietta.com/static-files/8a92a1e0-c5e5-4500-9793-de1e9166fd38

Apologies if my 'price tag' annotation misled anyone.

I've had a go at looking at the economics of a rail link. Here's a simplistic example calculation.

Assumptions:

1. Production at 500 kilotons per annum.
2. Shipping to Reno or Vegas ~220 miles.
3. Trucking cost = 12 cents/ton-mile, rail cost = 4 cents/ton-mile. *
4. Rail capital cost = $20m, i.e. we only pay for our specific 10 mile section of track.

Calculation:
Saving per ton = $0.08 x 220 = $17.6
Saving per annum = 17.6 x 500k = $8.8m

Pay-back would be in just over 2 years, obviously worthwhile for a mine with multidecade lifetime. Any comments/corrections welcome of course.

* Source:
https://research.ark-invest.com/hubfs/1_Download_Files_ARK-Invest/White_Papers/ArkInvest_101420_Whitepaper_BadIdeas2020.pdf
See Figure 12. These numbers are similar to numbers I've seen elsewhere. (I'm also told there can be a lot of variation - an obvious example would be whether someone has a load available to be carry on the return journey.)
It's interesting that these guys think autonomous EV trucks may be competitive with rail within 5-10 years. I think that's optimistic, but it's great to have a second possibility for reigning in transport costs, which have always been a concern for the CS project. Even cheaper if we could use barges, but that doesn't seem likely...

It's the price tag for the railway branch line.

and Crow Springs as in CS Project, for anyone unaware.

On a gloomy Sunday afternoon I was just perusing the 2021 Nevada State Rail Plan, as you do, and something caught my eye. (Warning - it's a big document, 302 pages.)

https://www.dot.nv.gov/home/showpublisheddocument/19234/637528812972070000

Take a look at Figure 4-27 on page 4-83 (275th page) and Table 4-20 on page 4-84 (276th page).

Here's an attempt to cut&paste from the table:

Crow Springs
Esmeralda
Connect to Mina Branch SW of G Jct.
Rail Connection
open-pit perlite and pozzolan
10 [Track miles]
$20,000,000 [The price tag]
SR Minerals, Inc.
7 [Region]
5-20 [time horizon, years]

Interesting...

Last of the 5, Holcim (Lafarge) H1 2021 results just out:

https://www.holcim.com/h1-2021-results

A similar picture to the others, very upbeat. They made 7 bolt-on acquisitions in H1 (though mostly in Europe) and are trumpeting "ECOPlanet, an innovative range of green cement that delivers at least 30 percent lower carbon footprint with equal to superior performance".

Analyst presentation, Slide 26:

"
OUTLOOK AND TARGETS 2021
GROWTH TRENDS TO CONTINUE IN 2021, GUIDANCE UPGRADED
Growth momentum continues in all regions, supported as of H2 2021 by various stimulus programs
...
continue acceleration of bolt-on acquisitions
...
Accelerated progress towards 2030 sustainability targets
"

4th of the 5, Martin Marietta Q2 results.

The most useful bit is the "CEO Commentary and Market Perspective":

https://ir.martinmarietta.com/static-files/0fec96f3-5db8-46de-87b6-43b6bc50625a

Here's a snippet:

"...we announced a $2.3 billion cash agreement to acquire Lehigh Hanson, Inc.’s West Region business (“Lehigh West Region”). Lehigh West Region provides the Company with a new upstream materials-led growth platform across several of the nation’s largest and fastest growing megaregions in California and Arizona, areas we specifically identified as target markets over a decade ago through our SOAR process. Following the closing, which is expected to occur in the second half of 2021, Martin Marietta will have an expanded coast-to-coast geographic footprint across 10 of the 11 U.S. megaregions along with a broader array of product offerings. This acquisition also allows us to pursue future attractive and complementary bolt-on opportunities. ..."

I've no idea which CRMC(s) we're negotiating with, but if it's this one then you'd have to expect delays while they sort out their new acquisition.

3rd of the 5, Cemex Q2 results:

https://www.cemex.com/documents/20143/52736797/2Q21results_English.pdf/33665b12-0591-77ff-50b0-5255cde08ab6

Slide 4: "Growth accelerates in 2nd quarter"
Slide 8: Targets: "Accelerate bolt-on/margin enhancement projects"
Slide 9: Climate action goals
Slide 12: "prices for cement rising 3%" (not quite as good as Eagle)
Slide 22: "What to expect ... Advance materially on our new intermediate and long-term Climate Action goals, showing progress on a quarterly basis"

2nd of the 5, Heidelberg Q2 results just out:

https://www.heidelbergcement.com/en/investor-relations

They're planning "selected bolt-on acquisitions and capacity expansion projects" but are unlikely to be our CRMC, as they've sold off their West USA assets to Martin Marietta. (We should be getting MM's Q2 later today.)

Like Eagle they report a strengthening US cement market with "overall positive price development", and are pushing hard on CO2 reduction.

1st of the 5, Eagle Materials Q1 results today:

http://ir.eaglematerials.com/node/20676/html

Nothing about imminent pozzolan deals, but some positive comments on the cement market:

"
our Cement business benefited from sustained high levels of infrastructure spending
...
We expect underlying market conditions to remain strong as the US economy recovers
...
The average net Cement sales price for the quarter was up 7% to $116.34 per ton. [compared with a year ago]
"

(We know that the pozzolan price/ton is very similar to cement these days.)

In an effort to relieve the boredom (but possibly adding to it) ...

I note that five of the large cement companies have results coming out later this week (list below). These days they're all pushing their green agendas, with ambitious CO2 reduction targets for the next decade and beyond. Much of this centres around their fuel usage and CO2 capture, but it does also include the use of SCMs (supplementary cementitious materials).

Perhaps in their presentations & conference calls they might drop hints of relevant deals or acquisitions?

Wed 28 :
Eagle Materials (Nevada Cement) Q1

Thu 29 :
Cemex Q2
Heidelberg (Lehigh Hanson & Essroc) Q2
Martin Marietta Q2

Fri 30 :
Lafarge Holcim H1

Thanks MTM,
The bit I found the most surprising was at around 11:00-12:30 : that there are nuclear fuel buyers working for the utilities that are still unaware of SPUT! Beggars belief...

https://www.zerohedge.com/energy/nuclear-energy-systemic-risk-or-climate-change-cure