to frozen in Ontariowell, too early to be frozen here in North Bay - but give her 6 weeks.
to respond:
- Polaris started shipping in 2007 and shipped 1.15M tons in 2007 from the Orca quarry (as it had started production that year).
- When I think of cycles I think 7 years
- we can't compare 2014 to 2007 for a number of reasons; or we can but need a number of caveats, here goes:
- it was start up in 07 and 08 so material is priced for market entry
- the world started to fall apart in mid-2008 - so you have a monumental dislocation occuring; and vols tank in 2009 - 2011, and maybe price softens
- In 2008 - pricing was 12.75/ton
- in 2012 q3 and q 4 and through 2013 and h1 2014 pricing was between $12.90 - $13.70
- credit where it is due - and its what i would expect - is that through a brutal recession - PLS basically maintained price and in the last 8 quarters got modest improvement cf 2008.
- they did their restructuring - loans, property sales and all that ulcer creating stuff - survival mode and pricing product in those dark years was prob not the highest priority - survival was. they did a commendable job.
- now we are sailing in clearer skies - but i add one more step to create a trilogy - price, volume and unit cost (reduction) and the last one is quite powerful also.
- Now in 2014 the company is clipping along at a 1.0 m tpa at $13.00/ton for orca sand and gravel. We have also seen a 1.2M quarter and a profit in that quarter.
- increasing volumes does wonders for rducing unit costs in a business of this scale (well for any business - look at the majors in the bulks - they claim greater margin at lower prices thanks to more units).
- even if price remains at $13/ton for Orca sand and gravel - and they do 1.1 - 1.2M in SF Bay - they probably have green numbers.
- You are correct on pricing - they should be doing better in this more bouyant environment - they should be pushing through price improvement at or better than 8% p.a.
- Volume: clearly add Port of Long Beach - gradual sensible entry and they add another 200,000 tons per Q as they start in that market at higher ASPS - maybe $17-$20/ton and that is juice to the bottom line.
- Think of a business configured to do 4.5M in SFO and 1.5M in LA - with higher ASPs and reduced unit cost and that is fantastic enterprise.
- Then leverage your excellent infrastructure and push eagle rock (Hard rock) or this other resource through it (at higher ASPs) and that takes up up a gear.
- Then build out the front door - another port in LA, San Diego, and you are in terrific shape - and it will be worth $800M.
So, dont under estimate the lowering of unit costs, even with flat prices.
Absolutely, management needs to sieze the initiative in the Bay and start getting 8-15% per annum price improvements.
And go about the development of the business per plan - over the next 3 years.
In that time Cali's demand side will be kind (and then also coupled with scarcity of aggs in Cali will enable pricing to be improved).
In normal cycles - Cali gets the best price increases. VMC have a big business there - more in the south, and central vallet, as do CEMEX and Heidelberg - and they exhibit rational price leadership in markets. Looks like the same can be said for the majors in SFO.
I hope this helps.