Sept. 6, 2021

11:00 am Pacific

BullMarketRun.com

Salt Wars, Part 1:

Meet North America’s New Commodities Kingpin 

Sixty-four year-old American entrepreneur Mark Demetree, part owner of MLB’s Kansas City Royals, has made a $5.2 billion (U.S.) bet on the North American Salt market.

That’s right, $5.2 billion on Salt (not Gold, not Lithium, not Uranium, not Nickel, but Salt).

And he’s not finished yet. He could strike again, literally any day.

As the saying goes, Follow The Money – especially when it’s “smart” money invested by a super successful business tycoon who has made all the right moves to become the Kingpin of Salt in North America.

BMR has followed that money trail and it leads to Newfoundland, interestingly, where Demetree is now eyeing the “jewel” of the Atlantic in terms of Salt deposits, a nearly billion tonne high-grade resource with perfect geology and a nearby deep water port. At a time of security of supply issues in the most important sector of the continental Salt market, with Demetree’s group also in a spat with the union at the ageing Pugwash mine in Nova Scotia, a battle is brewing over who may acquire this “jewel” of the Atlantic that could serve both Eastern Canada and the Northeast USA. There are 3 main contenders, and the aggressive Demetree appears to hold the early advantage.

Grade, size, location, and management – Great Atlantic has it all, including a Salt expert (Atlas President Rowland Howe) who Demetree has enormous respect for (in fact, he recruited Howe from the UK for North American Salt in the mid-1990’s). Atlas, formerly Red Moon Resources, now trades under the rather appropriate and memorable ticker symbol “SALT” on the TSX Venture Exchange.

Historical photo of Mark Demetree (left) with his late father, Jack Demetree.

A Harvard Business School grad, Demetree comes from a family with an impressive history in Florida. They’re even part of the story of how Walt Disney World came to Orlando, and how cable TV came to Jacksonville. Mark’s late father, Jack Demetree, was a top real estate developer and banker who was known for his civic and philanthropic activities. He was voted into the Florida Housing Hall of Fame in 1993 and the National Housing Hall of Fame in 1997. Demetree Brothers, Inc. became a full-service real estate developer and property manager in 1985 and excels to this day (Jack Demetree, also a U.S. Air Force veteran, passed away in 2015 at the age of 87).

From Mark Demetree’s perspective, Salt is a tremendous wealth creator, just like real estate. Efficient underground Salt mines are known to be “Cash Cows”, decades-long profit centers (through all economic cycles) like the Goderich mine in southern Ontario that Demetree had some valuable experience with in the 1990’s. He left North American Salt for other ventures by the late 90’s, but he watched Howe as mine manager turn Goderich into the largest underground Salt operation in the world after it became the cornerstone asset of a public company (Compass Minerals, CMP: NYSE) in 2003. Compass rocketed to $100 (U.S.) a share thanks to Howe’s engineering exploits, and Goderich is still going as strong as ever as evidenced by Compass‘ latest financials and its 4% annual cash dividend.

Demetree formed Silverhawk Capital Partners, a company that specializes in management buyouts and other private equity transactions in the growth industrial, energy/natural resources and business service sectors, and also Demetree Salt, LLC (a family investment vehicle focusing on investments in the chemicals, minerals and energy sectors) before resurfacing in a big way in the Salt sector when he became Chairman of Kissner in 2015. Within 6 years, during this pandemic, he would leverage his negotiating skills, knowledge of the Salt market and a myriad of business relationships to spearhead 2 separate buyouts totalling $5.2 billion (U.S.) through Los Angeles-based conglomerate Stone Canyon Industries (SCIH). He is now effectively the Kingpin of Salt in North America and controls even more annual road Salt production than Compass.

Oh, yes, road Salt – this is a huge specialty business within the broader Salt industry. In fact, the single biggest use of Salt in North America (>40%) is for de-icing our roads, highways and parking lots. It’s estimated that 25 million tons of road Salt is scattered across U.S. roads each year (~150 pounds for every American). It’s a major expense for cities and states, and commercial customers like shopping malls. And because weather leads to demand spikes, and both the U.S. and Canada tend to operate in just-in-time style inventory models instead of managing risk by storing surpluses of critical commodities, there are often shortages of road Salt precisely when everyone needs it most.

“Climate change” isn’t making things easier, either. Weather events are becoming more extreme, as Texans recently discovered, and road Salt is most effective when temperatures are actually closer to freezing (if it’s too cold, like below 15 F or –9 C, the Salt won’t have any effect on the ice). And no economic substitutes or alternatives for road Salt exist in most applications.

Given all of the above, it’s astonishing that North America has left itself so vulnerable when it comes to the supply of road Salt (but, of course, look at how we’ve handled other commodities and strategic metals). Indeed, there are concerns about “security of supply” for critical markets in the Northeast USA and Eastern Canada. We haven’t built any new underground Salt mines in the last 20 years, and some of the ageing existing operations can’t convert to new technology and won’t be around a lot longer. We actually now rely on overseas imports from Chile and North Africa to the tune of 8 to 10 million tonnes a year to meet demand. Meanwhile, rapidly escalating shipping costs from overseas, labor issues and greedy governments wanting more of a “slice of the pie” from resource projects in jurisdictions like Chile are the “final straw”, putting upward pressure on Salt prices and creating urgency around bringing a top tier undeveloped project like Great Atlantic into production.

Not hard to understand why Mark Demetree believes $5.2 billion (U.S.) is a very smart bet on this sector.

Note: John, Jon and Daniel hold share positions in SALT.

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