LWS Financial Research: Investment theses 📝

Saturn Oil

Albert Millan — Tue, 21 Apr 2026 16:02:48 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

All content on this website and publications, as well as all communications from the author, are for educational and entertainment purposes only and under no circumstances, express or implied, should be considered financial, legal, or any other type of advice. Each individual should carry out their own analysis and make their own investment decisions.

Introduction and business model

Saturn Oil is a Canadian oil & gas company focused on acquiring quality assets and subsequently developing and integrating them. More specifically, it has a base of light oil assets in Canada and looks for the following attributes in its acquisitions: assets that are immediately cash-flow generative and have low natural decline rates. The latter is key, as it maximizes free cash flow without requiring intensive reinvestment simply to maintain production. With this approach, the company operates fields in Alberta and Saskatchewan, with more than 20 years of inventory and the ability to continue growing organically, as well as through its disciplined M&A strategy. And disciplined is the right word: in a sector where typical acquisition multiples tend to sit around 3x-4x cash flow, Saturn has consistently paid between 1.5x and 2x CF for its assets. This differentiates the company from most of its Canadian peers and is, in itself, one of the pillars of the thesis.

It is a mid-sized producer, at around 40k boe/d, that has integrated four assets in four years. This has weighed heavily on the share price, both because of the operational uncertainty associated with integrations of such material size and because of the debt taken on to fund these purchases, which adds a layer of financial risk to the cyclical weakness seen since 2022. That said, why now? After three years of low and declining prices, the EIA expected the crude bear market to reach its final stage, with a surplus of more than 3Mb/d, in line with COVID levels, for this year and next. That would have pushed prices toward the $50/b range. Of course, no data supported these projections, and reality pointed more toward a slight surplus in the first half of the year that would correct toward 2027, at which point the ability to increase supply outside OPEC+ would become clearly constrained, opening the door to a more constructive pricing environment.

And then the conflict in Iran began. This event, especially the closure of the Strait of Hormuz, through which more than 15Mb/d were exported, has completely changed the outlook for oil and energy in the years ahead. With flows through the Strait of Hormuz seriously limited, a maritime route that accounted for around 20% of global crude supply, we are facing the largest supply disruption in decades, one that the market, for now, seems to be ignoring. Every passing day, more than 10Mb of inventory are lost due to production shut-ins in the Gulf. And even if peace were signed today and the Strait were declared open, tanker logistics alone, 25-30 days to reach and unload at destination and the same again to return, mean that the cumulative inventory losses would already exceed 1.1 billion barrels. That is an enormous figure and would leave inventories practically at their minimum viable operating levels.

While, as always in human history, this conflict will eventually be resolved, replenishing even part of those inventories and normalizing the situation will create a demand tailwind in the coming years. In my view, this puts a new floor under oil prices at above $75/b WTI, a level already highly attractive for many producers globally. Against this backdrop, could investing in oil companies be interesting, or is everything already priced in?

Investment idea

To answer the question of whether Saturn Oil could be a good investment opportunity, we will analyze the following sections:

Assets and business units
Operations and financials
Balance sheet and shareholder return
Valuation

Let’s get started.

H&R Block

Albert Millan — Tue, 24 Feb 2026 09:01:14 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

H&R Block is a provider of tax infrastructure. It is a structural intermediary between taxpayers and the regulatory complexity of three key jurisdictions: the United States, Canada, and Australia. Its model combines assisted tax preparation and DIY (do-it-yourself) solutions, distributed through multiple channels— in-person, online, mobile, virtual, and desktop software—allowing it to capture both the traditional and the digital customer. This is complemented by the sale of ancillary financial products under its own brand and in partnership with banking partners, increasing the average ticket beyond the mere tax return. In parallel, through other services such as Block Advisors and Wave, the company has extended its value proposition to the small-business segment, offering year-round bookkeeping, payroll, advisory, and payment processing. This vertical partially reduces the seasonality inherent in the core business and strengthens recurring revenue. In terms of scale, H&R Block is one of the largest providers of tax return preparation and electronic filing services in its three main markets, with 22.8 million returns filed in fiscal year 2025.

With respect to seasonality, most customers file between February and April, which implies that a substantial portion of revenue is generated in an extremely narrow window. It is a campaign business. The model, while simple, depends heavily on human capital and is therefore not very scalable nor particularly high quality. As of the end of June 2025, it had approximately 4.300 permanent employees, but peak headcount—including seasonal staff—reached 70.100 people during the last tax season. The ability to recruit, train, and supervise this temporary workforce is as strategic an asset as its office network or its software.

Ultimately, the business rests on two structural pillars:

Reputation and brand trust, fundamental in a service where errors have legal and financial consequences.
Operational capacity to absorb massive demand spikes within very tight time windows.

The model can be broken down into the following blocks:

Assisted Tax Preparation: Preparation in company-owned offices. It remains the main volume driver.
DIY Tax Preparation: Self-prepared returns on the digital platform. In 2024, 3.8 million returns were filed versus 11.4 million assisted in the U.S., showing that the assisted model remains dominant.
Royalties: 30% of U.S. franchisees’ revenues.
Refund Transfers: Allow fees to be deducted directly from the tax refund, reducing payment friction.
Peace of Mind: Audit and error coverage, with defined limits.
Emerald Card and Spruce: Mastercard-branded financial products where refunds are received and funds can be added throughout the year.
Emerald Advance: Short-term loans ($350–$1,300), offered in November–December and repaid on March 31, generating interest and fee income.
Wave: Digital platform for small businesses integrating financial and tax services.

Although it has many product lines, the core of the business is structured around assisted preparation, making it clear that many customers want to be guided through the process and not worry about it. Customers can go to a physical office, submit documentation digitally, approve the return online, or request professional review of a previously prepared return (Tax Pro Review). The 100% accuracy guarantee is a structural part of the model. For assisted returns, the company reimburses penalties and interest arising from errors attributable to H&R Block. In the case of DIY, coverage is triggered if the software makes an arithmetic error, with a $10,000 limit in the U.S. In this way, there is an explicit transfer of responsibility that reduces friction and sustains the value proposition in a service where mistakes have direct economic consequences. Geographic expansion (in the U.S. as well as in Canada and Australia) relies on franchises. In the U.S., franchisees pay roughly 30% of gross revenues from preparation and related services as a royalty. Economically, this turns part of the business into a recurring, high-margin, low-capital stream. The brand, software, and central support are monetized without bearing the full operating cost.

In recent quarters, there has been a clear strategic shift at the company toward focusing on the SME segment, where it believes customer lifetime value is much higher, there is more market room to grow, and switching costs to DIY solutions are higher than in the individual segment. There is a large number of SMEs and self-employed workers in the U.S. (>35M) which, in terms of business volume, are equivalent to 4x the retail market, making the rationale for the strategic shift clear.

H&R Block’s valuation, heavily weighed down by fears of a total AI disruption, is at multi-year lows (excluding 2020, when FCF collapsed), at <6x. When we see a valuation at this level, the market is telling us the business is in clear decline, close to disappearing, and that its terminal value is zero; in this analysis we will examine whether we are truly seeing HRB’s final days (and therefore a value trap) or whether this is a major contrarian opportunity.

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Investment idea

To answer the question of whether H&R Block could be a good investment opportunity, we will analyze the following sections:

AI Disruption
Operations and financials
Balance sheet and shareholder return
Valuation

Let’s get started.

Golar LNG

Albert Millan — Tue, 27 Jan 2026 11:03:07 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

Golar LNG is the leading independent player in the FLNG market, a highly specialized segment within the global natural gas midstream. The company operates a fully integrated industrial model that spans the engineering, conversion, operation, and maintenance of floating liquefaction units (FLNG), capable of processing natural gas at the point of extraction and exporting it as LNG without the need for onshore infrastructure. This approach creates an operating profile with predictable cash flows, high technical availability, and exceptional resilience to geopolitical risk. Golar’s differentiated positioning relative to other competitors in the segment (both FLNG and onshore infrastructure) is based on three key elements:

A superior operating track record, demonstrated by the flawless performance of Hilli, its first asset, since 2018;
A contract portfolio with durations exceeding two decades and highly creditworthy counterparties;
A model that allows the replication of new FLNG units without incurring the complexity and cost overruns that typically affect onshore projects.

The company is at a strategic inflection point. With Hilli in operation (one of its assets, which will be discussed in more detail in the next section), Gimi starting production, and Fuji under construction, Golar is consolidating a platform whose EBITDA is expected to grow from approximately USD 250 million to nearly USD 1 billion by 2030.

At the macro level, natural gas is one of the commodities with the strongest demand outlook for the coming decades. It serves as a bridging energy source in the energy transition and provides flexibility to meet short-term demand peaks driven by structural factors such as global economic growth, as well as cyclical factors like the rise of AI. Supply and demand centers are geographically separated, making the export of large volumes of natural gas necessary, with LNG being the most efficient form. An FLNG unit costs roughly one-third of an onshore plant, enters operation 3–4 years earlier, and allows the capture of arbitrage opportunities without a fixed location. Golar is the leader in this modular architecture.

Over the past decade, Golar has executed a structural transformation that has fundamentally altered its business model, risk profile, cash generation capacity, and valuation as a listed asset. The company divested its LNG carrier fleet—sold to CoolCo in 2022—its FSRUs, and its downstream business, which was transferred to New Fortress Energy. This sequential divestment process has enabled debt reduction, corporate simplification, and the reallocation of resources toward the highest-return and most scalable business: FLNG.

The result is a pure-play FLNG company with a clear growth strategy supported by multi-decade contracts, high-quality clients—BP, Perenco, Pampa, Harbour Energy—and projects aligned with globally relevant gas hubs such as GTA (West Africa) and Vaca Muerta (Argentina). This transformation has dramatically reduced operational complexity and increased financial visibility. The market, however, continues to value Golar as a cyclical asset dependent on Argentina and commodity prices, rather than recognizing that it operates a global, diversified contract portfolio with returns comparable to—or higher than—those of premium energy utilities. Compared with its main competitors (ENI, Petronas, Shell, Cedar LNG), Golar is the clear leader in FLNG capacity (8.6 mtpa across its three assets versus 6.4 mtpa for ENI, the second-largest operator), in an industry expected to grow significantly over the next five years, expanding from 17 mtpa of supply to an expected 30 mtpa. Each FLNG unit is typically contracted for 20 years, effectively turning the assets into quasi-utility instruments, with exceptionally stable margins and an unusual level of cash flow visibility even within the energy infrastructure sector.

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Investment idea

To answer the question of whether Golar LNG could be a good investment opportunity, we will analyze the following sections:

Assets and business lines
Operations and financials
Balance sheet and shareholder return
Valuation

Let’s get started.

Valaris

Albert Millan — Thu, 18 Sep 2025 10:01:56 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction

Ensco was incorporated in 1975 by a predecessor company called Blocker Energy Corporation, founded by John R. Blocker. Blocker had established a drilling company in South Texas in 1954, but was forced to dissolve it in 1958. He later worked at Dresser Industries as operations manager of the oilfield equipment division in Argentina and Venezuela.

When Blocker left Dresser in the mid-1970s, he purchased a small drilling company that eventually became the core of Blocker Energy Corporation. His goal was to leverage his South American experience to compete in international markets, aggressively relying on debt to expand the company’s fleet to 54 rigs in 8 countries by the early 1980s.

However, the collapse in commodity prices in 1985 left the company on the verge of bankruptcy, leading to its sale to BEC Ventures in 1986. This firm was led by Richard Rainwater, a financial advisor well known for his success with the Bass brothers’ fortune. In 1987, Blocker resigned as CEO and was replaced by Carl Thorne, a BEC Ventures partner and an experienced industry executive who had been president of Sedco.

BEC changed its name to Energy Service Company Inc., whose acronym became Ensco. In 1992, the company officially assumed the name Ensco International Incorporated.

Throughout its history, Ensco carried out two transformational acquisitions:

§In 1993, it acquired Penrod Holding Corporation from the Hunt family, adding 19 rigs to its fleet.

§In February 2011, it acquired rival Pride International for $7.3 billion, which allowed it to diversify its fleet into drillships and semisubmersibles in Brazil and West Africa.

In 2019, Valaris was created through the merger of Ensco and Rowan. Due to the depressed macroeconomic environment associated with the pandemic, Valaris filed for bankruptcy in August 2020. After emerging from bankruptcy proceedings in April 2021, the company eliminated $7.1 billion of debt and received a $520 million capital injection through the issuance of first lien notes.

Business Model

Valaris is the largest offshore contractor globally, with a fleet consisting of 49 assets: 10 state-of-the-art drillships (excluding 3 in cold stack), 2 semisubmersibles, and 34 jackups, in addition to a 50% stake in ARO, a joint venture with Saudi Aramco, which owns another 9 jackups (explained later).

The company operates under a business model based on providing offshore drilling services to international oil companies (IOCs) and national oil companies (NOCs). Revenues are generated through the signing of drilling rig lease contracts, the most common of which are:

1.Dayrate Contracts (the most common)

Structure: The client (IOC or NOC) pays Valaris a fixed daily rate (dayrate) for the use of the rig and associated services.
Payment components:
- Operating dayrate: daily fee when the unit is operational and drilling.
- Standby rate: reduced fee if the unit is not drilling but remains under the client’s control.
- Mobilization/Demobilization fees: compensation for moving the unit at the beginning or end of the contract.
Duration: typically range from short-term (6–12 months) to multi-year (2–5 years). In periods of high demand, clients usually secure longer-term contracts to lock in capacity.
Idle time: when not under contract, assets are placed in stacking.

2.Bareboat Charters (e.g., with ARO Drilling)

Transfers the use of the rig in exchange for a fixed rental fee (bareboat rate), but without providing crew or daily operations.
This applies to some jackups Valaris leases to its joint venture ARO. In this case, Valaris receives a lower fee since it does not provide crew. However, it avoids operating costs and is therefore more protected on the downside of the cycle, even if it captures less upside when market dayrates increase.

Investment thesis

Metals X

Albert Millan — Mon, 23 Jun 2025 15:03:04 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

Metals X ($MLX.AX) is a tin producer and explorer with operations in Tasmania, Australia, and one of only two publicly traded tin producers in operation, alongside Alphamin. The company owns 50% of Bluestone Mines Tasmania, a joint venture with Yunnan Tin—one of the largest tin producers and refiners in the world—and Greentech, which in turn controls the Renison mine (MLX’s main producing asset) and the Mount Bischoff project, which has been on care and maintenance since 2010.

In addition to its mining operation, Metals X acts as an investment vehicle, acquiring stakes in other projects (both tin and other metals) in Australia. Compared to Alphamin—which we've traded several times since the launch of this publication and exited due to increased geopolitical risk—the deposit it operates is of lower quality, but the jurisdiction is far superior, making the risk/reward profile much more attractive. Furthermore, with Denham’s recent sale of its stake in $AFM, the company is, in my view, no longer a retail-friendly investment vehicle. $MLX is the only viable option for investing in a tin producer.

But… what is tin used for?

Considered—rightly so—one of the metals with the strongest tailwinds for the coming decade, tin is involved in all major current megatrends: mobility, renewable energy, semiconductors, and AI. Specifically, its main industrial applications are:

Electronic soldering: Accounts for 47–48% of global consumption. Approximately 50–70% of all tin produced is used in the electronics and electrical industry, including mobile phones, tablets, computers, and other devices.
Chemicals: Make up 18% of the global market, used in the production of PVC, fungicides, dyes, and food colorings.
Tinplate: Represents 13–14% of demand, mainly in food and beverage packaging.
Other uses: Include lead-acid batteries (8%), copper alloys (5%), and other applications such as protective coatings and float glass.

As with uranium and PGMs (you may start to see a pattern in the ideas we present), tin’s cost relative to the total product (due to the small amount used in each soldering) is negligible, which makes demand relatively inelastic. In the following chart, we can see the substantial demand growth in recent years and the equally positive projections, particularly due to demand from EVs and, even more so, semiconductors. In fact, beyond the established uses already mentioned, some emerging trends are equally promising:

Electric Vehicles: EV batteries could account for as much as 60,000 tonnes annually by 2050. Tin shows potential as a high-capacity material for both anodes and cathodes in lithium-ion batteries.
Renewable Energy: Tin is used in photovoltaic cells in solar panels, where it can improve efficiency by up to 17% when replacing copper. Green technologies are driving increased tin consumption.

Global tin production remains highly geographically concentrated: China leads (24.63% of global output), followed by Indonesia (21.11%) and Myanmar (14.81%). Further down the list are Peru (10.32%), Bolivia (6.44%), and the Democratic Republic of Congo (5.47%). Global production has remained relatively flat at around 300,000 tonnes per year for nearly two decades, and its future is uncertain due to both geopolitical (cyclical) and geological (structural) challenges.

Historically, artisanal mining has played a key role in Indonesia and Myanmar. In Indonesia especially, there have been major issues due to uncontrolled exploitation (which depleted onshore deposits, requiring now more complex and costly offshore mining) and fraud. In an effort to regain control, exports were restricted in 2024 and have yet to fully recover. However, Indonesia shows signs of recovery in 2025: exports through April 2025 were 130.8% higher than in 2024, indicating a gradual normalization of supply.

Looking at the cost curve—and factoring in all CAPEX—it’s hard to imagine a breakeven price below $40,000/t by 2030. In fact, the most reasonable expectation is for figures even higher, around $50,000/t.

In this context, global tin inventories remain critically low. LME inventories are at a two-year low and Shanghai at a three-month low, with both combined holding just 10 days’ worth of global demand.

The global tin market is facing a structural deficit, which has worsened in 2025 due to multiple factors, with a projected shortfall of 28,200 metric tonnes for the year. Demand for tin will continue to grow, driven mainly by emerging sectors, and major analysts forecast prices above $35,000/t as early as 2026.

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Investment idea

To answer the question of whether Metals X could be a good investment opportunity, we will analyze the following sections:

Assets
Operations and financials
Balance sheet
Shareholder return
Valuation

Let’s get started.

Vermilion Energy

Albert Millan — Tue, 13 May 2025 15:02:06 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

Vermilion Energy is an international oil and gas producer based in Calgary, Alberta, focused on the acquisition, exploration, development, and optimization of assets in North America, Europe, and Australia. Operational management is organized from the Calgary headquarters, but it has local business units in each region. As we can see in the following chart, its assets are located in both North America (United States and Canada), as well as in Europe and Australia.

Their portfolio combines low-decline conventional assets—providing a stable cash flow base—with long-term growth assets in key areas such as the Deep Basin, the Canadian Montney, and Germany, consolidating a diversified production profile that adapts well to a volatile price environment like the current one, thanks to exposure to oil, European natural gas, and North American natural gas. In fact, recently (late last year), they completed the acquisition of Westbrick Energy, positioning them as a natural gas producer rather than an oil producer, completely shifting the focus and profile of the company.

Europe is, in terms of prices and margins, the crown jewel of $VET.TO, and the reason many of us became interested in the company. The natural gas market in the old continent, especially since the loss of Russian supply, is one of the most lucrative in the world: Europe is entirely dependent on imports to meet its domestic demand (although this has reduced significantly due to the decline of its industrial base), and it must compete with Asia for LNG shipments, which makes the prices of this commodity 4x higher than in the United States (and 7x higher than in Canada).

Until now, Canadian natural gas (AECO) has been a very unappealing investment, as the supply is huge but cannot be exported, causing prices to be very low, as we can see in the following chart. However, this could change soon:

The demand for natural gas is expected to grow significantly across the American continent and globally, as it is a much more efficient and cleaner energy than coal (which it will replace for many uses), and the rise of AI and data centers are a huge demand sink.
So far, the North American market (both the U.S. and Canada) has been captive, but a large LNG export capacity is under construction and should be operational in the coming years, reducing the current difference and arbitrage between markets.

With these tailwinds for its product, could it now be an interesting investment idea?

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Investment idea

To answer the question of whether Vermilion Energy could be a good investment opportunity, we will analyze the following sections:

Assets
Operations and financials
Balance sheet
Shareholder return

Let’s get started.

Assets

International Petroleum Corp

Albert Millan — Fri, 04 Apr 2025 11:31:28 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

International Petroleum Corp. (IPCO) is an oil and gas E&P (exploration and production) company based in Canada, with assets in various geographies (Canada, France, and Malaysia). IPCO's story is inseparably linked to the Lundin family—the founders—who continue to lead the company and remain its main shareholders.

While each company should be judged on its own merits, it's undeniable that management, along with its vision and execution, are key components in investment ideas. In IPCO’s case, the Lundin family founded Lundin Oil in 1997 through the merger of two other companies and liquidated it in just four years with a 4.6x return (46% CAGR), returning the cash to shareholders and founding Lundin Petroleum in 2001. That company was also liquidated 16 years later, with a 67x return (32% CAGR), and from it, IPCO was spun off in 2017 (currently delivering a 4x return).

With Lundin Petroleum, they became the largest independent E&P by size, producing ~85k boe/d and developing one of the largest oil fields in European history—Johan Sverdrup. It wasn’t their only success, and companies from the Lundin group are typically synonymous with quality and strong execution; in fact, in our model portfolio, we’ve also benefited from Filo Mining.

Focusing now on this article, IPCO holds assets in Canada, Malaysia, and France, and produces both liquids (66%) and Canadian gas (34%), which means it has a significant exposure to the North American market. The main price benchmarks for its products are Brent (Malaysia and France), WCS (Canadian crude), and AECO gas.

Most of IPCO’s producing assets have a low decline rate, which allows for stable production with reasonable capital investment. Given the quality of its assets, IPCO is also a cheap stock based on the estimated value of the company’s reserves. Currently, the stock trades at a 45% discount to NAV ($3.1B), which represents the company’s after-tax NPV-10 of 2P reserves as of December 2024 (although this NPV was calculated using Brent assumptions of $75/bbl in 2025 and $80/bbl for the following years—above current prices). IPCO is a company with a similar profile to HCC in coal: a high-quality business engaged in a growth and development project that will transform it as soon as next year—with the difference that, in this case, it’s also returning value to shareholders in the present.

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Investment idea

To answer the question of whether International Petroleum could be a good investment opportunity, we will analyze the following sections:

Business Segments
Operations and Finances
Balance Sheet
Capital Structure
Shareholder Returns

Let's get started.

Cresud S.A

Albert Millan — Thu, 05 Dec 2024 11:01:37 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

Cresud is an Argentine conglomerate focused on the agricultural sector. It operates a diversified business model that combines agricultural production with a strategic real estate approach. The company owns approximately 880,000 hectares, of which 106,000 are leased, used for cultivating soybeans, corn, sugarcane, and livestock farming. Additionally, it actively engages in land acquisition and development to later sell it at a higher price, following a rotational real estate model. As a conglomerate, Cresud also holds significant stakes in other publicly traded companies, such as BrasilAgro ($LND) and IRSA ($IRS).

For this analysis, we will focus on the core business—the agricultural segment—and only include the stakes in IRSA and BrasilAgro in the valuation section. However, it is worth understanding their activities and why they might be of interest (further discussed in the thesis section):

IRSA: Argentina's largest real estate group, with a substantial asset portfolio in the Buenos Aires area and near-monopoly control over shopping malls and other commercial real estate.
BrasilAgro: Follows the same business model as Cresud's Argentine operations: acquiring rural land with high cash flow potential, transforming and optimizing it (generating returns), and later selling it at a significantly higher value.

In the agricultural business, which spans Argentina, Bolivia, Paraguay, and Brazil, Cresud has seen exponential historical growth, combining organic development (through its own operations or leasing/rental agreements) with territorial expansion—first to Brazil and then to Bolivia and Paraguay. Since 2010, the company has focused on consolidating its assets and gradually divesting some already optimized properties.

This segment also includes services offered by Agrofy and FyO—an agribusiness e-commerce platform and a supplier of agricultural inputs and machinery, respectively.

The company's performance over the past five years has been outstanding, with particular dynamism following Javier Milei’s electoral victory. As all subscribers know, this is a theme we have been tracking—thanks to one of our team members, Mr. Timbits—from the beginning, yielding spectacular results. (Premium subscribers have access to an introductory video on this theme.) On our subscription Discord channel, many companies have been shared in a synthetic ETF format, each with a specific catalyst calendar. Is it too late for this opportunity, or is there still room for growth? What is the size and what are the drivers of the value to be unlocked?

We will complement this investment analysis with a geopolitical overview of the country's political outlook and Milei’s chances of securing a second term and expanding his power base. This would accelerate the implementation of key measures essential to this investment thesis.

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Investment idea

To answer the question of whether Cresud can be a good investment opportunity or a value trap, we will analyze the following sections:

Business Segments
Operations and Finances
Balance Sheet
Capital Structure
Shareholder Returns
Roadmap

Throughout the article, we will convert ARS to USD using the market exchange rate. In the past, this posed a challenge, as the official (reported) exchange rate and the market rate showed significant discrepancies. However, since Milei's arrival, these values have almost converged, and we are very close to the lifting of currency controls.

Let's get started.

Natural Resource Partners

Albert Millan — Fri, 08 Nov 2024 16:01:41 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

This investment idea should have been published at the end of October, but we decided to delay it to include the most recent information from the results on 11/05, which we believe are relevant. Therefore, two investment ideas will be published in November, resuming the usual pace and schedule.

Introduction and business model

Natural Resource Partners is a Master Limited Partnership (MLP) with a portfolio of coal, oil, and gas reserves, as well as a minority stake (49%) in Sisecam Wyoming, a business focused on trona mining and soda ash production. U.S. MLPs are not very attractive from a tax perspective for European investors and have specific tax treatment even for domestic investors: since they are true partnerships, the company itself does not pay taxes directly; instead, investors are required to pay taxes on their share of the earnings. For European investors, distributions (which are usually substantial) are subject to a 37% withholding tax, and there is even a special tax at the time of selling the shares.

The company is organized into two main operating segments:

Mineral Rights: This segment includes approximately 13 million acres of mineral and other subsurface rights in the United States. If combined into a single area, this property would cover around 20,000 square miles. The resources produced on these assets are essential for steel, electricity, and basic building materials production, while also offering opportunities for carbon sequestration and renewable energy.
Soda Ash: This consists of a non-controlling 49% stake in Sisecam Wyoming, a company dedicated to trona mining and soda ash production, located in the Green River Basin in Wyoming. Sisecam Wyoming mines trona and converts it into soda ash, which is marketed both domestically and internationally for the glass and chemical industries.

The company does not operate its assets directly but leases them out, with operators handling their exploitation and taking on operational expenses, capital costs, and other obligations related to production activities. Its portfolio is highly diversified, with more than 150 leases across over 50 lessees, which reduces associated risks and strengthens income stability.

Approximately 50% of the segment’s revenue comes from metallurgical coal royalties, essential for the steel manufacturing process, which we have covered extensively in articles on Alpha Metallurgical Resources, Whitehaven Coal, and Warrior Met Coal, without the risks thermal coal faces from environmental regulations or low-priced natural gas competition. On the other hand, around 20% of the segment’s revenue is generated through thermal coal royalties, driven partly by international demand but in long-term structural decline due to the gradual phase-out of coal-based power generation in the U.S. and the rest of the West.

However, this segment also holds long-term interest, with supply facing a bleak outlook, even worse than demand. Russia’s coal industry, one of the largest producers, is experiencing one of its worst crises in decades, affected by the loss of Western markets, falling demand in allied countries, and a drop in global prices. Production in July fell 6.7% year-over-year to 31.5 million tons, the lowest level since 2020. The sharpest decline was seen in bituminous coal, a key component of total production, which dropped by 8.2%.

Western sanctions, which exclude Russian coal from European markets, have been a critical blow. In Asia, which initially absorbed some of this supply, tariffs and competition from countries like Indonesia and Australia have further reduced Russian exports, particularly to China, India, and Turkey. In the first half of 2024, exports to China fell by 8%, while India and Turkey reduced theirs by 55% and 47%, respectively.

With over half of the companies in the sector (in Russia) posting losses and the global coal price in decline — down 34% in the first half of the year — many miners are currently operating below their production costs. Although the Russian government forecasts increased production in the long term, the lack of demand and the transition of several Asian countries toward cleaner energy sources suggest that mine closures are inevitable, especially those far from export markets.

This geography, while critical, is not the only one facing challenges. Indonesia, as with its tin industry, faces an issue with reserve replacement, and its production is expected to collapse in the coming years if there are no advances in technology or the development of new reserves and deposits.

Demand, contrary to the prevailing narrative, still has room for growth: many countries, especially in Asia, continue to add coal-based power generation capacity, and even in the West, driven by the proliferation of data centers requiring large amounts of baseload energy (renewables are not suitable, for example, due to flow intermittency and quality). For this need, only natural gas, nuclear, and coal are viable options. In the long term, nuclear is the best choice, and in the meantime, gas should serve as a bridging energy source, but due to pricing, logistical, and supply issues, coal will likely play a significant role in this regard.

The company, therefore, contrary to what the market discounts, is positioned in two industries (not including soda ash) with very interesting prospects — one benefiting from demand tailwinds and the other from supply challenges.

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Investment idea

To answer the question of whether Israel Chemicals can be a good investment opportunity or a value trap, we will analyze the following sections:

Business Segments
Operations and Finances
Balance Sheet
Capital Structure

Let's get started.

Israel Chemicals

Albert Millan — Sun, 29 Sep 2024 17:02:03 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

ICL Group Ltd. (hereinafter, Israel Chemicals) is one of the largest producers of specialized minerals worldwide. Specifically, its main products include potash, bromine, phosphates, and advanced agricultural solutions. Its operations are based in Israel (headquarters), Spain, the United Kingdom, and China, and are divided into the following business lines:

Industrial Products (bromine)
Potash
Phosphate Solutions
Growth Solutions

They are leaders in each of these segments, either by market share or cost competitiveness, and they fully cover the three value chains of these minerals.

Before going into detail about each one in the investment thesis section, let's briefly look at what each of these divisions entails:

The Industrial Products segment manages the bromine value chain, including elemental bromine and its compounds for various industrial applications, along with complementary businesses like phosphorus-based flame retardants and minerals from the Dead Sea for the pharmaceutical, food, and oil and gas industries.
The Potash segment focuses on the production of potash fertilizers, in addition to the magnesium business, a byproduct that includes the production and sale of pure magnesium, magnesium alloys, chlorine, and sylvinite.
The Phosphate Solutions segment includes specialized phosphate salts and acids for food and industrial applications, as well as agricultural phosphates, mainly used as fertilizers.
Lastly, the Growth Solutions segment is dedicated to specialized fertilizers, with a global expansion strategy through opportunistic acquisitions. In 2022, they integrated the acquisitions of Fertiláqua and the plant nutrition business from Compass Minerals in South America, positioning ICL as a leader in specialized crop nutrition in Brazil and helping to balance the seasonality of the segment.

In the short term, the demand for fertilizers is volatile and seasonal, influenced by factors such as weather in key agricultural regions, fluctuations in crop planting, agricultural input costs, agricultural product prices, and advancements in biotechnology. Additionally, factors such as government subsidies, environmental regulations, and credit lines for farmers or agricultural input producers also have a significant impact.

Despite this volatility, the general perception is that countries are looking to ensure a stable and quality food supply for their populations, which encourages local agricultural production. This idea was reinforced by the Covid-19 pandemic in 2020 and, more recently, by the conflict between Ukraine and Russia, which reduced the availability of fertilizers and grains, exacerbated by U.S. and European sanctions on Belarusian fertilizers in 2022.

In the long term, increasing demand for food due to population growth, as well as the reduction of arable land, are significant tailwinds for the fertilizer market.

The company is at 20-year lows, and the geopolitical context in its main region of activity (Aleix’s analysis on this topic will be seen in the thesis section) is not very encouraging, which makes the sentiment truly negative.

Does the price reflect a paradigm shift for the company, or on the contrary, does it offer a good opportunity at a low point in the cycle?

Let's find out.

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Investment idea

To answer the question of whether Israel Chemicals can be a good investment opportunity or a value trap, we will analyze the following sections:

Business Segments
Geopolitical environment
Operations and Finances
Balance Sheet
Capital Allocation

Let's get started.

Hellofresh

Albert Millan — Sun, 01 Sep 2024 15:02:12 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

HelloFresh is a food logistics company with a subscription-based business model. Specifically, the company has two main business segments (and some ventures that are still in their early stages but have great potential for the future):

Meal Kits: This is the company's original vertical, from which they have grown to become the clear market leader, using its cash flow to expand into other segments. They operate in 16 countries, and their business model is based on a subscription service where the customer selects the number of meals they want to receive each week (as well as the day and time of delivery) and receives as many boxes (like the ones in the picture) as they have chosen. Each of these units contains all the ingredients needed to prepare a dish, along with the recipe to follow. Although preparation takes time and effort (customers can also choose the level of dedication they want), it allows them to prepare elaborate and original dishes, avoiding the shopping and meal planning process, making it relatively convenient at a reasonable price. All their dishes are designed by chefs and nutritionists. Initially, they only operated under the HelloFresh brand, but they have expanded their catalog to include different price ranges and culinary options.
This chart is somewhat outdated, but it shows the company's market share in the United States, where it is the undisputed leader (the same situation exists in European markets, with the company itself estimating this dominance at 80%).
Ready to Eat (RTE): This is currently the most interesting vertical for the company. In this business area, the company offers ready-to-eat meals that require minimal preparation (often just heating) and offer a wide variety of convenient options. Given the evident change in lifestyle for much of the population, with much less available time and different preferences from cooking, it is a segment with a lot of growth and tailwinds.
In 2020, aiming to diversify its operations into a segment adjacent to its original one, they acquired the company Factor and have been scaling it up since then.
Recently, they have expanded into other verticals, such as pet food, which is a segment with huge projected growth, or vegan food.

HelloFresh was a big beneficiary of COVID, during which their products saw high natural demand and their marketing investment needs were significantly reduced, leading to a boom in profits and stock price, which led them to project exaggerated growth that they have not been able to achieve.

After the pandemic boom, when leisure and dining habits returned to normal, marketing expenses multiplied, margins shrank, and growth disappeared, leading to very negative sentiment around the stock, which has fallen 90% from its peak, recently hitting a low of €4.42 per share. The final blow came this year when the company (finally!) acknowledged that its guidance and projections for 2025 were unattainable and started a new strategic plan from scratch.

Is there hope for this company? Is the recent drop from its peak an opportunity or a value trap in a low-quality, clearly declining business? Let's take a look.

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Investment idea

To understand this investment idea, we will analyze the following sections in detail before making a final valuation and conclusion:

Sylvania Platinum

Albert Millan — Tue, 30 Jul 2024 16:33:58 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Note: this article was updated on March 24, 2025. The original release was on July 30, 2024, when the stock was trading at 56p/share.

Introduction and business model

Sylvania Platinum is a producer of platinum group metals (PGMs), with a focus on platinum, palladium, and rhodium. Specifically, Sylvania produces these elements by processing tailings from mining operations in South Africa, where they also own several deposits and PGM projects under development. For those familiar with this publication, their business model is similar to that of Amerigo Resources.

Their operations are located in the northern part of South Africa, near Johannesburg, and are divided between assets in production (or near production) and assets in the exploration or development phase.

Production

Within this category, there are two main assets (groups):

Sylvania Dump Operations (SDO): This includes a set of six processing plants that treat chrome tailings (both historical and fresh) to extract PGMs from the host mines. This is a mutually beneficial relationship: Sylvania does not incur the typical risks of mining operations and ensures a steady flow of material, while the mine operators benefit economically from waste material. The annual production is approximately 74,000 ounces of 4E PGM (a basket that includes palladium, platinum, rhodium, and gold).
Thaba Joint Venture (Thaba JV): In 2023, they entered into an agreement to develop a 50%-50% joint venture with Limberg Chrome Mine to process the tailings that this miner will produce. The initial mine life is estimated at 10 years, and production will be approximately 6,800 ounces/year of PGMs and 210,000 ounces of chrome attributable to Sylvania starting in 2026, significantly increasing their production volume and diversifying the minerals they are exposed to. According to the consensus on metal prices (which I believe are too conservative), the payback period for this investment will be 3 years.

In addition to their production (or development) assets, Sylvania has a portfolio of exploration-stage assets, which we will value at 0 for this analysis. They are investing very little capital in these assets, given that we are in the lowest phase of the PGM capital cycle, and their capital allocation priorities and financial prudence advise against it.

Platinum Group Metals (PGMs)

PGMs are relatively unknown and generate very little investor interest. However, their uses are diverse and highly relevant, as it is very difficult to replace their properties with other materials. The physical scarcity of these elements, which are considered precious metals (also used in jewelry and investment), assigns them a very high nominal value, but they are used in small quantities, making them a tiny part of the costs of the products in which they are integrated, causing demand to be relatively inelastic to price.

The most interesting property of these metals is their role as catalysts (i.e., they accelerate certain chemical reactions without being consumed or altered in the process), whose main application is reducing emissions in internal combustion engine vehicles (and also hybrids), though recently they have seen significant demand in hydrogen-powered vehicles. The following chart shows the main sources of demand for Sylvania’s three primary products.

As well as the outlook for these metals in terms of supply and demand. The company itself, reflecting market consensus, expects persistent (and growing) deficits in platinum, palladium, and rhodium over the next five years.

The consensus narrative now is that internal combustion engine cars will be quickly phased out, almost disappearing by 2030, which would significantly disrupt PGM demand, leading to minimal investor interest. However, we see that several car manufacturers, like Renault, Ford, Mercedes, and Porsche, are increasingly retracting from their electrification ambitions, understanding that demand for this new technology does not yet exist on the necessary scale for the transition. The only segment still growing in new categories is hybrid cars, which do consume PGMs. For more insights into these concepts, here is a link to an article by Alberto Álvarez and a video we recorded with him discussing the macro thesis supporting this investment idea.

With more resilient demand than the market expects, it is crucial to analyze supply. Palladium supply peaked in 2019 with over 7 million ounces extracted and 2.6 million ounces recycled. Since then, miners have reduced production or put mines into maintenance (primary supply has fallen 10% since 2019), and significant mining expansions by major PGM producers have been delayed or canceled due to stagnant and low underlying prices. Palladium production is dominated by a single Russian company, Nornickel, with a 43% market share, making this supply source inelastic to price. Currently, in a market context where most producers are unprofitable and there is a significant deficit (expected to last for years), PGM mines will continue to deplete, close, or go into maintenance, further exacerbating the deficits.

In the following chart, we can see the industry's cost curve and how, at current prices, there are very few profitable producers. Sylvania appears in the first quartile, but it is actually the lowest-cost producer, since this cost curve also includes CAPEX, and we’ve seen that the company is engaged in a very significant expansion program.

The most important thing to understand is that the current situation—barring a total and immediate technological disruption that drastically reduces demand for PGMs—is unsustainable: at current prices, and even considering that a large part of the supply (coming from Nornickel) is produced at negative margins, almost all producers are losing money (and even less so able to incentivize new projects), while at the same time we are seeing market deficits. Eventually, as happened with uranium, this will change, and the price of the underlying commodities will rise to meet the profitability needs of marginal producers. As is often the case, current sentiment is extremely pessimistic and based on the assumption that internal combustion engine vehicles will disappear immediately. In the following table, we can see the current consensus for the four main metals Sylvania produces, which, with the exception of platinum, show (according to analysts) very bleak prospects. This price consensus is what the company uses for its projections and guidance, and in my view, they will be positively surprised, adding a new layer of optionality to the investment.

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Investment thesis

To understand the investment idea of Sylvania Platinum, we will focus, as we always do, on the main drivers of value creation. Specifically, the main aspects influencing the valuation and its realization are as follows:

Operations and financials
Balance sheet
Shareholder returns

Let's dive in.

Gulf Keystone Petroleum

Albert Millan — Mon, 01 Jul 2024 07:24:57 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

Gulf Keystone Petroleum (GKP) is an oil and gas operator with assets (Shaikan) in the Iraqi Kurdistan region. The company began commercial production at this field, which is one of the largest in the region, in 2013, and since then they have scaled operations and created incredible value for shareholders. Their equity in Shaikan is 80%, and with the 2022 production figures (44.2k boe/d), they estimate that the field's reserves would cover 28 years of exploitation.

The commercialization of their product was conducted through the Iraq-Turkey Pipeline (ITP), a pipeline that connected Erbil, the capital of the region, with the port of Ceyhan, which, as we will see later, has been the subject of dispute and political conflict in recent years.

GKP's strategy, until last year, had a clear focus on growth, with an ambitious drilling and ramp-up campaign that allowed them to reach 55k boe/d of production in March 2023. However, this was abruptly and traumatically disrupted on March 25th last year. With the ruling of the International Chamber of Commerce in favor of Iraq (again, more details later), the flow through the ITP dried up, causing a total disruption of GKP's operations. Shaikan was completely shut down on April 13th, and all expansion activities were quickly reduced to cut expenses and preserve liquidity. Since then, they have managed to redirect part of their volumes to the local market, although the selling prices are much lower (~$28/b).

What can we expect from now on in terms of production, price, and shareholder return for $GKP?

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Investment thesis

To understand the investment idea of Gulf Keystone Petroleum, we will focus, as we always do, on the main drivers of value creation. Specifically, the main aspects influencing the valuation and its realization are as follows:

Geopolitical context
Operations and financials
Balance sheet
Shareholder returns

Let's dive in.

Geopolitical context

To address this complex aspect, which is crucial for this investment idea, we have the genuine privilege of collaborating with Aleix Amorós (@aleix_amoros), one of the best geopolitical analysts and a regular contributor to our Discord. I extend my gratitude and recognition for his generosity. The following content has been entirely prepared by him and serves as an ideal framework for evaluating the possibilities, obstacles, and timings of conflict resolution.

Irak, lights and shadows

Few regions in the world are more volatile and complex than Kurdistan. This transnational territory, which spans up to four countries south of the Transcaucasia, is home to the largest stateless community on the planet, composed of more than 25 million people.

Historically, the nationalist aspirations of the Kurdish people have been fiercely persecuted and combated by their host nations, especially in Turkey. Ankara has been involved in a low-intensity asymmetric war with the Kurdistan Workers' Party (PKK), the armed wing of the Kurdistan Communities Union and the main Kurdish party in the country, since 1978, leaving more than 40,000 dead to date. This situation similarly echoes in northern Iran and in the eastern bed of the Euphrates in Syria, where Kurdish communities mostly coexist marginalized by the state.

The only example of certain prosperity and territorial consolidation at all levels has occurred in Iraq, whose capital, Erbil, performs all pertinent administrative functions. The case of Iraqi Kurdistan is certainly peculiar, as it enjoys a unique semi-autonomous status in the region and has managed to maintain good relations with the central government in Baghdad. Additionally, it played a key role in expelling the Islamic State from the north of the country in the mid-2010s through its defense forces, the Peshmerga, earning them not only internal recognition but also that of important international supporters such as the United States.

The nexus of this romance between Erbil and Baghdad, in any case, does not lie so much in good intentions or social identity, but in something much more primary—and profitable—oil. It is estimated that there are still about 45 billion barrels of reserves in this region, which, to put these figures in perspective, is more than four times the discoveries in Guyana in recent years, which have been the largest new proven reserves found in decades.

Until 2014, and despite Iraq's tumultuous contemporary history, the business was running smoothly. The prolific fields around the Kirkuk governorate attracted the attention of numerous foreign companies, which settled in the Kurdistan Regional Government (KRG) and energized the local economy. The bulk of the production was then sent to the city of Baiji through a pipeline, and from there it flowed to Fishkabour, the last enclave on Iraqi soil before crossing the Turkish border. Ultimately, the branch on the other side of the border extended to the port of Ceyhan on the Eastern Mediterranean, thus allowing the crude to reach international markets. The State Organization for Marketing of Oil (SOMO) handled the transportation and mediation between the parties, ensuring that producers operating in the KRG paid the respective tolls and royalties to the central government. It was, in essence, a non-zero-sum arrangement, benefiting all parties.

The emergence of the Islamic State in Iraq in January 2014 turned the status quo upside down. Fallujah, near the capital, was the first city to fall, and from there the Islamist group spread like wildfire through much of the country. On June 10, the insurgents managed to take control of Mosul, Iraq's second-largest city, after less than a week of fighting. In this situation, and anticipating a collapse of the central administration, the Peshmerga captured Kirkuk two days later. Between June 17 and 18, the Islamic State launched offensives against the city, but they were successfully repelled. Despite this feat, the transportation of oil through the Kirkuk-Ceyhan pipeline was completely disrupted, among other things due to significant damage to the infrastructure.

It so happens that in May 2012, the Turkish government and its counterpart in Erbil reached an agreement for the construction of a gas pipeline and two oil pipelines directly from the Kurdistan Regional Government to Turkey without Baghdad's approval, thus cementing the rapprochement that began between the two in 2009.

As a result, during the second half of 2014, operations began on the first—and to date only—alternative pipeline that was built. This pipeline also converged in the town of Fishkabour, where it connected to the main branch, thus bypassing SOMO’s supervision and enhancing trade between Iraqi Kurdistan and neighboring Turkey.

Baghdad did not stand idly by. Immediately after the first shipment of crude oil through the new pipeline, it initiated arbitration proceedings against Turkey at the International Chamber of Commerce (ICC). This Paris-based organization ruled in favor of Iraq on March 23, 2023, stating that the country led by Recep Tayyip Erdoğan’s government had breached the agreements signed in 1973 regarding the Kirkuk-Ceyhan pipeline. The ICC imposed a $1.5 billion fine for the damages caused between 2014 and 2018. The next day, oil flows from Iraqi Kurdistan ceased completely after Turkey shut down the pipeline, thus expressing its disagreement with the court's verdict.

Fifteen months have passed since then, and the situation remains stalled. There are many interests at stake, often antagonistic to each other, which only complicates a potential negotiated resolution. Moreover, the tribunal's ruling was not made public, further complicating the verification of the various parties' claims about the content of the judgment.

Turkey, an uncomfortable but necessary partner

Starting with Turkey, the government distanced itself from the outset from the International Chamber of Commerce's ruling, which pointed to it as the main party responsible for the dispute by having improperly allowed the Kurdistan Regional Government to independently commercialize and export its crude oil outside of SOMO’s supervision. Ankara justified the unilateral cessation by citing force majeure, resulting from the damages caused by the strong 7.8 magnitude earthquake that struck northern Syria and southern Turkey on February 6, 2023, thus avoiding potential claims for breach of contracts with the private contractors operating in Iraqi Kurdistan.

Dundee Precious Metals

Albert Millan — Tue, 28 May 2024 16:53:25 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Note: This article has been updated as of 02/21/2025. The original release was on 05/28/2024, when the stock was trading at C$ 11.56/share.

Introduction and business model

Dundee Precious Metals Inc. is a gold mining company with interests in Bulgaria, Namibia, Ecuador, and Serbia, headquartered in Canada. Specifically, they have the following assets:

Chelopech, a gold, copper, and silver mine located near Sofia, Bulgaria, which is Dundee's main project. They hold 100% ownership.
Ada Tepe, a gold mine in Bulgaria with a short remaining lifespan. They hold 100% ownership.
100% interest in the Čoka Rakita mine in Serbia, which is in the feasibility study phase—this is the stage immediately preceding the final development decision.
100% interest in the Loma Larga and Tierras Coloradas assets in Ecuador, which have faced some regulatory challenges in developing the deposits. However, there have recently been some positive

Until last year, they also had a smelter in Namibia, Tsumeb, which they sold in March 2024 for $49M, considering it no longer a strategic asset and having other alternatives for processing their product.

It is clear that we are in a bull market for gold, with the main question being which phase we are currently in. In my opinion, we are in a mid-phase, driven by strong buying pressure from central banks, which are reinforcing their reserves with hard money to counter the militarization of the dollar (i.e., the use of the Western financial system and reserves denominated in its currencies as a weapon against opposing political blocs) and the collapse of the fiat system due to a debt spiral. The following chart shows how, since 2022—when Europe and the U.S. decided to militarize the financial system—gold purchases by central banks, led by China, have accelerated significantly.

Historically, gold has traded with a strong (inverse) correlation to real interest rates, and that still seems to be the prevailing mantra in the West, where investors have been selling gold through ETFs—the most common exposure vehicle. This makes the recent bullish surge in the metal's price even more significant.

However, this dynamic has shifted in the last two quarters of 2024, with ETFs becoming net buyers. Given the recent changes in inflation expectations and the interest rate trajectory for the Fed and other major central banks, this trend could also reverse. If that happens, we may see the historical relationship between real rates and gold prices adding even more upward pressure on the metal.

The case of precious metals, and especially gold, is paradigmatic in terms of commodities, as analyses cannot (and should not) focus on the cost curve of supply since they trade with a monetary premium. However, this is another aspect to consider when choosing which companies (or vehicle, if we want to do it through second derivatives or ETFs) to invest in. In this sense, the most relevant metric to observe is the All-In Sustaining Cost (AISC), which represents the production cost (cash cost) minus depreciation and amortization and with transportation, maintenance CAPEX, and G&A added, and is the benchmark for the true cost of production. In the following chart, we can see the industry's cost curve (cash cost) and where Dundee Precious Metals stands on it.

Once we understand the macro context in which we want to bet, it is time to analyze why Dundee Precious Metals seems to me a very interesting option to express this conviction.

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Investment thesis

Once the underlying thesis for gold investment is understood, which we have been leveraging over the past year with Dynacor Group, let's look at the specific points that make Dundee Precious Metals interesting:

Duratec Limited

Albert Millan — Sun, 28 Apr 2024 10:01:13 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

Duratec Limited is an Australian contractor whose business involves providing assessment, maintenance, and repair services for both public and private infrastructure across various sectors. In line with this, their corporate mission is to become the largest civil contractor in the country. The main industries they serve include energy, mining, defense, facades and building, and maritime infrastructure.

Companies like Duratec, classified in the Engineering & Construction (E&C) sector, usually do not generate good long-term returns because they suffer from some structural and business model problems:

They operate in highly cyclical industries, with construction dominating the business over maintenance and rehabilitation, closely tied to the boom-and-bust economic cycle.
There is a risk of project concentration. E&C companies, especially in their early stages, often depend on one (or a few) major clients or projects, posing a significant risk to business viability if they lose the contract or if their client faces difficulties in their own business.
Execution risk. Contractors typically lack significant moats, and much of their competitive advantage is based on reputation and track record. Poor execution, especially due to negligence, malpractice, or incompetence, can cause irreparable damage leading to business collapse.

At first glance, this company may not seem to fit the profile of companies we typically follow in the LWS Financial Research universe. However, what has piqued my interest in this industry, leading me to the idea of $DUR, are the significant tailwinds in the sector and the particularities of the company that mitigate many of the risks described above.

The majority of the human population (80%) resides in developing countries striving to achieve Western living standards, which necessitates quality infrastructure. Consequently, we are witnessing a construction and development boom in these regions. Once developed, similar to OECD countries, these infrastructures require maintenance to ensure longevity and service, estimated at 5%-6% of their cost annually, guaranteeing a tailwind and recurring business for contractors performing these tasks. In Australia, this case is even more pronounced due to having aging infrastructure, with maintenance and renovation needs that are even greater.

In addition to this structural trend, due to the current geopolitical situation, nations' defense spending is continuously and significantly increasing, with maintenance being a key component of this expenditure. In the specific case of Australia (lower image), the energy and mining sectors also hold significant economic relevance and require similar care and supervision.

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Investment thesis

Once the structural tailwinds are understood, let's focus on the specific idea of Duratec, which has particularly interesting fundamentals, characteristics, and valuation. Specifically, we will analyze the following sections:

Denison Mines

Albert Millan — Sun, 17 Mar 2024 10:35:19 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Note: this post has been updated as of 27/04/2025. The original post was published 17/03/2024, when the stock traded at 1.88$/s.

Introduction and business model

Denison Mines is a uranium exploration company with assets in the Athabasca Basin in Canada. They own 95% of the Wheeler River project, the largest undeveloped deposit in this region, which, along with Australia and Kazakhstan, are the geographical areas with the highest amount of uranium worldwide.

I believe we are at the beginning (probably, a little beyond the beginning right now) of the last major uranium bull cycle, and Denison Mines is one of the most interesting investment ideas to take advantage of it. As with almost all explorers, the company's fundamental analysis has a short scope, beyond the study and valuation of its undeveloped assets, and what is truly interesting is understanding the macro landscape in which it operates.

Uranium: the last dance

The market balance outlook for uranium, from a commodity investor's standpoint, is the most positive I have come across to date, with all elements aligned for an explosive situation:

Tailwinds and significant demand growth.
Supply issues and massive deficits.
Significant catalysts in the form of secondary demand.

To understand the current situation and the derived prospects, it's interesting to first go back 20 years, to the previous nuclear bull cycle. In the early 2000s, a large amount of secondary supply, stemming from nuclear de-escalation after the end of the Cold War, posed a too heavy obstacle for nuclear demand, which, though growing, couldn't absorb such volumes, greatly limiting the development of new mines. In 2003, the flooding of McArthur River, one of the world's largest mines, was one of the first supply shocks of what was to come, which, combined with an explosion in reactor demand from China, initiated a major bull cycle where uranium prices reached $140/lb (inflation-adjusted, $183/lb).

The Great Financial Crisis and, above all, the Fukushima nuclear accident, ended this bullish period, curbing demand in a market balance with a lot of new supply, and uranium prices plummeted to levels where very few producers were profitable, creating a primary supply deficit compensated, as 20 years before, by secondary supply from Japanese inventories. Since 2011, the sector has operated in a constant decline, with no investor appetite. Everything began to change in 2018.

New nuclear spring

After the Fukushima accident, Japan, one of the biggest proponents of nuclear technology, shut down almost all of its reactors, and Europe and the United States, influenced by environmental lobbies (with a very poor understanding of reality, considering that nuclear energy should be the cornerstone of any reasonable decarbonization plan), also began a campaign to close operational plants, reducing the energy autonomy of both regions. On the other hand, China, India, and other non-OECD countries continued to push for nuclear capacity construction, helping to keep global demand levels afloat.

China remains the largest source of growth, and it is expected that over half of the 76 reactors under construction will be located in the Asian giant; the anticipated growth in demand implies consumption of 254 million pounds in 2025 (compared to the current 175 million pounds), and it is likely that the figures, as in recent years, will continue to surprise on the upside. Sentiment regarding nuclear energy is changing, and regions historically opposed to it, such as Germany, the United States, and other European countries, are now prioritizing energy security and economic efficiency, promoting the commissioning and reactivation of nuclear plants. A tangential and anecdotal example that hits close to home is that of Spain, whose stance was completely opposed to keeping nuclear power plants active, and which is now also beginning to shift.

Extensions of the life of current reactors will require replenishing inventories, which are at least three times the annual consumption requirements, and the rest of the operational plants have been negligent in recent years, showing a complacent attitude towards weak prices, covering only 40% of their future needs

A multipolar world

The outbreak of war in Ukraine drastically changed the supply landscape, as the world seemed to split into two, with a clear separation between the Western bloc and the rest of the world, which took a much more neutral and accommodating stance regarding the armed conflict. The emergence of this multipolar world is especially relevant for the uranium market, since Russia operates 46% of the world's uranium enrichment capacity (the process of transforming the ore into nuclear fuel), and one of its satellite countries, Kazakhstan, is the leading producer of U308. Although these flows have not stopped due to sanctions (it seems that now the United States government wants to act on this front), the search for Western suppliers (with a focus on the enrichment process) has greatly increased the cost of these services in the past year. Whenever barriers and inefficiencies are created in a global commodities market, pressure on prices tends to rise, as energy security becomes more important than pure economic return.

This disruption is deeper than it appears at first glance, as it is not only about a change of suppliers, but also affects total volumes, due to the concept of overfeeding. Initially, yellowcake, the resulting yellowish paste from ore grinding, is transformed into UF6, which then, through enrichment, becomes nuclear fuel; in recent decades, since there was excessive enrichment capacity, underfeeding was practiced, meaning less UF6 was provided to the process, but it was carried out for a longer period, making more use of the input and achieving the same result. Now, where enrichment capacity is scarce, we are likely to see the opposite, a situation of overfeeding, with shorter processes but more input material, which is estimated to add demand equivalent to 20M lb - 30M lb, that is, an additional demand of 11%-17%. In fact, the bottlenecks we are seeing in the enrichment process are one of the reasons why we are not seeing the uranium price and sector stocks take off as one might expect (more on this in the next section).

Market balance

In 2024, primary uranium production is estimated to have been 153 million pounds (+9% compared to 2022), while utilities' demand was 195 million pounds (+0.5% YoY), creating a primary deficit of 42 million pounds (27% of the market), which is unimaginable in any other commodity market, only sustained by the contribution of secondary supply, although both this and inventories show clear signs of exhaustion. Future projections, if anything, are much more worrying and require a giant increase in supply to prevent market breakdown.

The uncovered demand between 2025 and 2040 is 2.2 billion pounds of U308, and without adding new sources of production, the annual gap in that year would be 150 million pounds. One of the main bearish arguments for the sector was the theoretical infinite capacity of Kazatomprom to increase its production at will, thus preventing a sustainable bull market. However, this hypothesis has been practically discarded with the announcement of the main nuclear producer earlier last year: they greatly lowered their production guidance for 2024 due to lack of basic materials (specifically, sulfuric acid), and they will also do so for 2025, where the market consensus expected a strong increase in supply volumes. As always in the mining sector, which is one of the worst for most of the time, negative surprises are the norm, and supply is not very elastic over time (a new mine decided to start now would take about ~5 years to become operational), while surprises for demand remain positive.

Coupled with the tailwinds of demand we have already seen, the situation is explosive. At last year’s summit in Dubai, this change in nuclear sentiment was reflected in the commitment of 20 of the wealthiest nations on the planet to triple their atomic capacity in the next 25 years, which further exacerbates the current projected deficit.

The lack of precise information on supply and demand (there is a lot of opacity around secondary supply and the actual inventories of utilities, for national security reasons) makes it difficult to make accurate predictions, but the rough numbers and main ideas are much clearer:

There is a large deficit in the market, and the tailwinds of demand are enormous.
New sources of supply require incentive prices of $80/lb (and rising, as inflation in costs keeps creeping up).
Geopolitical uncertainty creates inefficiencies in the market.
As always in the mining sector, negative surprises and delays are common, and only add fuel to the fire.

Additional catalysts

A deficit market, no matter how significant, is not enough to generate investment opportunities, and often a catalyst is needed to ignite the first spark of the fire. In the case of uranium, it has been financial actors through uranium trusts.

These ETFs, popularized in 2021 with the launch of the Sprott Physical Uranium Trust, issue shares to purchase pounds of uranium that, in theory, remain locked away forever, and facilitate institutional investors in betting on physical material. They compete with traditional uranium clients, reducing effective supply, and their effect on the price has been clear so far.

Sprott’s arrival

Following the success of Sprott and Yellow Cake, we have seen the launch of several additional funds (ANU, UAMC, PFYN...), and they are creating a virtuous circle (flywheel effect) as the spot price increases. They represent a non-negligible percentage of the annual supply, with an average annual demand of 20M lb (out of 150M lb of total supply).

Sprott Phyisical Uranium Trust holdings as of 27/04/25

Over the past year, after surging to over $100/lb, the spot price of uranium has been gradually declining, reaching around $60/lb in early April. Based solely on this signal, one might think that the fundamentals are not so attractive, as the market balance would seem to point clearly to a surplus. However, it is important to understand why this has happened:

The uranium spot market has very little liquidity, and hardly any transactions take place there, making the price signals it gives largely irrelevant.
Investor interest in the sector has completely disappeared, limiting the amount of capital flowing into financial players.

If we look at the long-term price (term contracts), which does reflect utility contracting, we can see that it has continued to climb and is now around $80/lb.

The last dance

Although the fundamentals of the sector are spectacular, and everything seems to indicate that the cycle still has room to run, some recent technological developments point to a material disruption in the fundamentals, which could render uranium mining obsolete, despite the success of nuclear energy. Specifically, the two advances that concern me the most are:

Implementation of fourth-generation reactors, which are capable of utilizing the entirety of supplied nuclear fuel, unlike current ones, and therefore could recycle nuclear waste created to date to operate for decades, greatly reducing the need for fissionable material.
New fuels and technologies, such as thorium reactors, which have already been used satisfactorily (and more efficiently than those based on the uranium cycle) on a small scale and in experimental settings.

At the moment, these are not imminent threats, and they would become operational by the end of this decade, so they will not have an effect on this cycle.

If this is indeed the last major uranium bull cycle, we are going to try to make the most of it. The last dance.

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Investment thesis

Once the uranium market balance is understood, it is not straightforward to translate it into a conservative investment idea, as there are only two reasonable options for publicly traded producers already in operation (there are more options, such as CGN, BHP, or Paladin, but their jurisdiction, size, or product focus do not make them as attractive):

Cameco
Kazatomprom

Between these two companies, they account for 35% of the world's uranium production. Due to Kazakhstan's political alignment, a country politically close to Russia, the most reasonable option for a Western investor is Cameco. However, its valuation and recent restructuring, becoming a full-cycle company, more akin to a utility than a miner, make it less attractive.

In this context, Denison offers a good balance between potential and security, and next, we will see the main points on which this investment thesis is based.

Peabody Energy Corporation

Albert Millan — Thu, 14 Mar 2024 15:10:13 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

Peabody Energy is a producer of thermal and metallurgical coal in the United States and Australia, although nearly 70% of its revenue comes from the thermal segment. They operate mines in the following geographies, with the production distribution contained in the legend:

Coal is the first fossil fuel widely used in history, enabling the industrial revolution and thus being the energy source that has contributed most to human progress. However, its public image has recently changed: it has been demonized for its high relative emissions (although modern plants have a very small impact), and its disappearance is forecasted in the near future. Despite these exaggerated proclamations, we need coal: we need it for electricity generation, the operation of industrial complexes, and steel manufacturing. These uses are key to welfare and economic progress, and demand will continue to rise, especially in the metallurgical segment and/or in developing countries, until technological innovation finds a greener, cheaper, and more efficient solution to these processes. In 2022, following the rise in gas prices exacerbated by the conflict between Russia and Ukraine, coal regained much of the lost competitiveness for electricity generation against gas. For reference, price equivalences for thermal coal were:

USA: $6/mmbtu of gas = $114/Mt of coal (vs $150/Mt price in 2022)
Europe and Asia: $35/mmbtu of gas = $665/Mt of coal (vs $350/Mt at the peak of 2022).

This dynamic led to gas-coal substitution for some processes, providing greater support to demand. In the most pessimistic forecasts (those of the IEA), contrary to the general opinion of imminent ruin, coal demand remains stable for the next 30 years:

Other consulting firms, such as Wood Mackenzie, confirm this view: they expect demand to remain flat until 2030 and then begin to decline slowly. However, it is better not to view demand as an aggregate, as there are significant geographic divergences: in developed economies, demand is already in a phase of slow decline, while in developing economies (many of which still use less energy-dense sources than coal, such as biomass), demand continues to increase, and at a very high rate; moreover, these areas also experience the highest population growth, making them more relevant. By 2030, it is expected that 85% of electricity generation capacity through coal will be in emerging economies. However, in 2023, due to the significant increase in shale productivity and the normalization of inventories in Europe and Asia thanks to the mild winter of 2022, the price of natural gas fell sharply, to the detriment of the competitiveness of thermal coal, leading to the closure of 14 GW of capacity in the USA (-41% accumulated since 2010).

The current supply is unable to meet these demand forecasts, and there are significant obstacles to the exploration and construction of new mines, especially in Western jurisdictions (in the USA, for example, coal production remains historically low, greatly damaged by shale competition in recent years). Meanwhile, China acknowledges that coal is its most important energy source and is increasing production capacity.

Commodity companies tend to be poor investments because when the supply-demand balance is in deficit and prices rise, high returns attract new investment, which eventually offsets the balance in the other direction, causing a price decline and losses to the sector. Coal could be the exception to this cycle, as new supply faces strong entry barriers due to the difficulty of obtaining permits and financing, preventing the typical trajectory of the capital cycle, especially in the metallurgical segment.

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Investment thesis

When we first published this idea at the end of 2022, thermal coal prices were at extraordinarily high levels (both historically and in relation to other energy alternatives such as gas and oil), and since then, they have fallen by nearly 60%, to around $140/ton, which raises the question of whether this investment idea still makes sense or not.

As we highlighted, prices have fallen significantly, especially in the thermal segment, so the financial projections we made have become obsolete, although the anticipated catalysts (start of the shareholder return program, margin reversal from derivatives...) have materialized.

Let's now look at the pillars of this investment idea and the expected valuation and return. The main points for this thesis are:

Amerigo Resources

Albert Millan — Sun, 25 Feb 2024 16:30:12 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Note: This article has been updated as of 02/26/2025. The original release was on 02/25/2024, when the stock was trading at C$ 1.32/share.

Introduction and business model

The business model of Amerigo Resources is very interesting and, in a certain way, similar to that of Dynacor Group, a company we have already analyzed and which has had a magnificent performance: Amerigo owns 100% of Minera Valle Central S.A (MVC), located in Chile, which has a long-term contract with the El Teniente Division (DET), the largest underground copper mine in the world. Under this agreement, MVC processes both new and historical tailings (material left over from the initial mineral processing, which does not extract all of the content), and obtains copper and molybdenum, which it sells at market prices. MVC generates revenue from the sale price of copper and incurs processing and refining expenses, royalties paid to DET, and transportation costs.

The Teniente mine, from which the tailings are obtained, began production in 1905, and it is estimated to remain active until 2082, making the supply for Amerigo practically infinite, and the jurisdictional and counterparty risk is negligible or very low as it operates with Codelco, the Chilean state-owned mining company. The agreement is valid until 2037 for the new tailings and until 2033 for the old ones, although it can be extended further; Amerigo estimates that the chances of early termination or non-renewal are very remote. Processing costs (~$2/lb) are high, mainly because most of the copper has already been extracted by Codelco.

The royalties paid to Codelco are proportional to the copper price and follow a predefined scale within the range of $1.95/lb to $4.8/lb; if the metal price remains sustained (for more than a quarter) outside this range, both parties will meet to agree on the specific amount to be paid. As a reference, a $0.20/lb increase in the copper price would entail a $0.1/lb change in royalties for DET.

In the finance and operations section of the investment thesis, we will delve into all the financial figures and projections to see what cash generation capacity the company has with current copper prices and put them into context regarding its valuation.

But... does investing in copper make sense? What are its prospects?

Copper investment thesis

Copper is one of the metals considered key for the development of nearly all current transformative megatrends, being the best electrical conductor in nearly any situation.

Despite efforts to find viable alternatives, copper remains the best-known conductor and will likely continue to be the preferred choice for most applications and uses unless significant deficits occur. A period of very high prices would be beneficial for mining companies, but there is a risk of demand destruction. In fact, during the period from 2000 to 2015, aluminum, much cheaper but with poorer conductivity, began to be used for many transmission lines.

Applications cover many transformative trends, such as electrification or renewable energies, although one of the most prominent is their application in BEV (Battery Electric Vehicle) technology. Electric vehicle designs are evolving to use less copper, which, combined with the slower adoption rate of this technology (compared to consensus), may lead to deviations from analysts' projections, although it is true that almost all simple substitutions have already been made.

Over the past decade, and perhaps generating excessive expectations, China's demand (and its growth), particularly in the construction sector, was truly remarkable. However, with the current real estate crisis the country is facing, along with economic slowdown and weakness in its manufacturing sector, doubts have emerged about the sustainability of this upward trend. Nevertheless, investment in infrastructure and energy transition (both in renewable energy itself and electrification) should offset this weakness, especially as the macroeconomic situation and restrictive monetary policy improve. In fact, it is likely that in March, after the two sessions of the CCP, we will see the announcement of a real stimulus package, as failing to do so would make it nearly impossible for China to reach its 5% growth target. Additionally, taking over from China, other Asian countries are experiencing a demand boom, which could push overall figures even higher.

China copper consumption, Mt. 2000-2022

It is estimated that copper consumption, including its relation to electrification and electric vehicles trends, will grow at a 2.7% CAGR, surpassing pure economic development (2.1% annually), and it doesn't seem straightforward for supply to match this pace. During the last cycle of high prices (2017-2018), the industry responded by launching several projects (QB2, Quellaveco, etc.), but these were the more advanced and easier to implement ones. From 2025 onwards, there is little visibility on new mines. At the same time, copper mining is becoming increasingly challenging: cost inflation, worsening ore grades, social discontent, and a lack of quality projects are putting pressure on extraction operations.

Entering into the current supply and demand balance, expectations for 2024 were pointing to a surplus of 2%. However, due to persistent supply issues (such as the closure of Cobre Panamá, reduction of guidance by several operators, etc.), the consensus now indicates a deficit of 1% for this year.

Current prices, after a sharp increase at the beginning of 2024 that took us above $5/lb, are not sufficient to massively incentivize new exploration and development. Combined with existing macroeconomic uncertainties, this is likely to further delay new project developments, exacerbating the future supply deficit, which is also worsened by the deterioration of current mining operations. Over the next 10 years, the necessary investment to balance the market—currently facing a projected 10Mt deficit—exceeds $200 billion, not accounting for potential cost increases and inflationary pressures.

If we analyze the industry's cost curve, a key factor in commodity investment, and its evolution over time, we can see that the 90th percentile was already above $4/lb last year (for 2025, an additional ~$0.1/lb–$0.2/lb should be considered). This suggests that $4/lb is the minimum threshold required to incentivize new developments with a decent return (+20% IRR). Most likely, this figure will continue to rise over time, which is why, in the valuation model for Amerigo, I will use $4.5/lb as a reference price going forward.

Governments continue to maintain a constructive rhetoric regarding the development of new projects, but with increasing emphasis on environmental policies, obtaining permits and social approval for these projects is becoming increasingly difficult.

From a momentum perspective, inventories are at historically high levels. A year ago, they covered less than five days of demand, which has historically led to significant price rallies to incentivize new supply. However, the situation reversed starting in May, particularly in China, and there is now a long way to go to return to price-supportive levels.

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Investment thesis

Let's review the operational, financial, and balance sheet aspects of the company in order to make an assessment and draw conclusions about the company. Specifically, we will analyze the following points, on which the investment thesis is based:

Operations
Cash generation
Balance sheet
Capital structure
Shareholder return

DHT Holdings

Albert Millan — Sun, 28 Jan 2024 16:09:07 GMT

Disclaimer

kairoscap is NOT a financial advisory service, nor is its author qualified to offer such services.

Introduction and business model

DHT Holdings is a company dedicated to maritime transportation, specifically the transportation of unrefined oil (crude tankers). The company has a fleet of 24 VLCCs (very large crude carriers), which are the largest type of tankers with sizes ranging from 200,000 to 320,000 deadweight tons (dwt). Out of these, 5 are operating under long-term contracts, while the rest operate on the spot market.

The estimated lifespan of a VLCC is around 20 years (although it can vary depending on the cycle's prosperity and may be extended or reduced), and beyond the 15-year mark, their cash-generating capacity significantly declines, making the vessels candidates for scrapping. DHT's tankers have an average age of 9.4 years, so while not having a very modern fleet, it still presents an interesting profile. Their fleet operates globally, covering major international routes. The type of vessel they operate, VLCCs, can carry 2 million barrels or more of crude oil and are typically used for long-haul routes: between the Arabian Gulf and North America, Europe and Asia, and from West Africa to the USA or distant Eastern regions.

The market for oil tankers, specifically the rates (daily fees received by operators for cargo transport), displays a clearly seasonal behavior, reflecting the dynamics of underlying oil demand. Demand peaks usually coincide with the period prior to the Northern Hemisphere winter (for energy or heating purposes) and the summer driving season, the summer period (again, in the Northern Hemisphere) with higher transport demand. In recent years, however, due to the growth of Asia with different (and often inverse) seasonal patterns than the traditional ones, the seasonality component has become more diluted and smoothed, improving rate stability.

In general, all maritime transportation segments, including crude tankers, exhibit a clearly cyclical behavior and are not good long-term investments (the buy and hold approach is not suitable in this sector), yielding very poor returns. These cycles typically last around 15 years from start to finish and always follow the same pattern:

Demand exceeds the supply of available ships, tightening the market and generating very high rates, from which companies obtain extraordinary returns, much of which they return to shareholders.
With these new cash generation prospects and considering that demand, except for some macroeconomic hiccups, is always on the rise, the estimated return for acquiring a new ship becomes very attractive, increasing the value of already built ships (second-hand), and prompting many companies to order new constructions from shipyards.
After 2/3 years (delivery time), all this new supply, often too ample due to excessive expectations, enters the market, reversing the market balance from supply deficit to surplus. Rates reflect the abundance of options, plummeting and creating financial problems for many operators.
The market consolidates, ships that no longer make sense to maintain in this new environment of low returns are scrapped, and we return to point 1.

The ideal entry point in this market is point 4, where stock prices are very depressed, and we capture all the upside of the new cycle. Right now, we are in the middle of point 1, where some of the value has already been realized, but some atypical catalysts make this cycle particularly interesting, creating a very attractive investment opportunity.

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Investment thesis

Next, we will review the key points, both sector-specific and for DHT in particular, on which the investment thesis is based.

Warrior Met Coal

Albert Millan — Sun, 19 Nov 2023 18:09:24 GMT

Disclaimer

LWS Financial Research is NOT a financial advisory service, nor is its author qualified to offer such services.

Note: This article has been updated as of April 19, 2025. The original version was published on November 19, 2023, when the stock was trading at $53.8 per share.

Introduction and business model

Warrior Met Coal is a metallurgical coal mining company based in Brookwood, Alabama. It operates two producing assets, Mines 4 and 7, with a combined capacity of 8Mt per year, 89Mt in reserves, and a projected 25-year mine life under the current production plan. As discussed in the article on Alpha Metallurgical Resources, one of its competitors, Warrior’s product is a critical component in steel manufacturing—one that currently has no economically viable technological substitute.

In fact, the latest EIA report, which already includes a significant political bias in both methodology and conclusions, projects under its base scenario (STEPS) that demand for metallurgical coal will remain stable through 2050. This suggests there is no terminal value risk in the short or medium term.

As a second-order effect, steel will continue to play a key role in economic development and stands to benefit from many emerging megatrends: population growth and economic development in Asia and Africa, housing and infrastructure construction and maintenance, the energy transition, and electric vehicles. This is a widely acknowledged fact among policymakers, and the pressure to phase out metallurgical coal is low—unlike thermal coal—until a truly viable alternative emerges. The following table summarizes the everyday uses of steel that we often take for granted.

As introduced earlier, Warrior has two producing assets and is developing a third, which—once operational—will become the crown jewel (in this sense, if you follow the oil & gas space, the setup is similar to that of $IPCO, which we have also analyzed). Specifically, the company produces high-quality metallurgical coal (HCC) from the following mines:

Mine 4: Operations began in 1974 under Jim Walter Resources, and Warrior acquired it in 2016 after Walter Energy’s bankruptcy in 2015. It has a maximum annual production capacity of 2.4Mt and 33.3Mt in reserves.
Mine 7: With a maximum capacity of 5.6Mt annually and 48.8Mt in reserves, this mine produces coal that sells at a premium compared to other U.S. coal specifications.
Blue Creek: One of the few remaining undeveloped high-quality (high-vol A) metallurgical coal deposits. It’s expected to produce 4.8Mt per year and holds 69Mt in reserves. In addition to defined reserves, there are 38.2Mt in resources, bringing the total to 107.4Mt. With the development underway, this would allow for 30 years of mine life, potentially extending to 40 years with further exploration.

The coal produced is processed in company-owned facilities. All three mines, including Blue Creek, are located about 300 miles from Warrior's export terminal in Mobile, Alabama—this proximity and logistical flexibility offer a cost advantage over many U.S. competitors. Warrior is a pure-play metallurgical coal producer, with negligible contribution from thermal coal. Its coal quality and location make it an ideal exporter with access to major demand hubs (Europe, South America, the U.S., and Asia) and the ability to rebalance shipments quickly. Last year, 38% of exports went to Europe (down from 63% the previous year), reflecting the flexibility to shift exports to Asia, where demand has proven more resilient amidst Europe’s economic weakness in 2023 and 2024.

Despite the high quality of its coal—often sold at a premium to benchmark indices—Warrior typically engages in medium-term contracts (1–3 years) negotiated well in advance. While this protects against downside risks during price slumps, it can also limit upside capture during sudden price spikes in bullish cycles.

Currently, the metallurgical coal sector is navigating a pronounced cyclical downturn, driven—unlike previous cycles—by both sides of the market balance:

Supply: New metallurgical coal projects are increasingly difficult to launch due to political and financial hurdles, which artificially restricts capital cycles in the industry. However, the ramp-up of several pre-planned projects (among the last remaining global sources of sufficiently high-grade material) has created a temporary surplus. As reserves are gradually depleted, the market is expected to revert to a much deeper deficit, especially in high-quality coking coal.
Demand: Demand for metallurgical coal is closely tied to steel demand (with near-perfect correlation), since most existing and newly built plants are blast furnaces. Steel demand is highly stable and strongly linked to economic growth. Most sources (World Steel Association, Fitch, Eurofer, etc.) forecast a ~1% CAGR in global steel demand—though not in a linear fashion. In 2024, demand actually declined (~1%) due to weakness in China's industrial and construction sectors. Uncertainty surrounding 2025 (trade tensions) doesn’t help either. For now, the outlook remains gloomy, and no major recovery is expected until late 2025 or even 2026—unless China implements a strong stimulus response.

These two factors have driven a steep drop in coking coal prices—from around $300/Mt to the current ~$190/Mt (even dipping to $170/Mt in March)—now below breakeven levels for a significant portion of global producers.

Coking Coal Futures AUS SGX, 5Y

Is this a buying opportunity? Will we see another bull cycle in coal? Let’s take a closer look.

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Investment thesis

As I’ve publicly stated on several occasions, I’m very bullish on the metallurgical coal industry—it was my top position during 2022 and 2023. Specifically, my main bet (and portfolio holding) was [company], which I considered the best vehicle to play this idea due to its unmatched shareholder return program and balance sheet. However, after a 70%+ rally, the risk/reward profile was no longer as attractive, so we decided to rotate capital into other ideas within the same sector. Let’s now go over the key points of the investment thesis in [company] to assess whether it may be a compelling opportunity.