Island Reversal in Play for MSTR
Another Discounted Stock
Update: RMK has jumped more than 40 percent today, but VUL is up only 6 percent at the moment. VUL is now trading at roughly a 50 percent discount from its RMK asset alone, i.e. it would need to rise 100 percent to reflect the value of RMK alone, all other assets valued at zero.
Here's another discount play, even better (measured by the discount) than the "freebased copper" play I posted in December
The stock is Vulcan Minerals, VUL.V in Canada. Not to be confused with Vulcan Materials that trades in the U.S. There are OTCBB shares under VULMF, but no volume. You could try putting in currency-adjusted limit orders, but those can take days to weeks to fill. Do not use market orders on OTCBB.
Vulcan Materials has a two gold projects, one they're optioning, plus a nickel project, but the real asset we're focused on here is their stake in Red Moon Resources, RMK.V in Canada. They own 57.1 percent of the company and it is a subsidiary.
Red Moon Resources has a gypsum project alone that could be worth the value of RMK's share price, but the prize at RMK is the Captain Cook Salt Project. It is in the pre-feasibility stage, but there could be ~800 million tons of salt that could be mined for 50-plus years. The CEO thought the mine could produce around $200 million annually back in 2019: This company is sitting on a 350-million-year-old motherlode of rock salt. The mines are located with a few miles of deep water ports and major highways in Newfoundland.
For the longer-term, if you think global cooling is a possibility and want to bet on it (or hedge), road salt is in high demand every winter. Most cities and towns run low on salt during winters with above-average snowfall and there's often short-term talk of shortages. If global cooling occurs, winters will be perennially worse than expected and it will take years before people realize what is happening.
RMK has a market capitalization of $16.7 million. Vulcan owns about 57 percent of RMK at the moment, down from 63 percent in 2019 because of dilution. The value of that stake is $9.5 million today. Vulcan trades at a market cap of $6.5 million. Vulcan would have to rise 46 percent to match its stake in RMK, with zero value placed on its other projects and royalties.
RMK has run up recently making a pullback likely, but buying Vulcan gives a nice margin of safety. The horizontal I have on Vulcan is at 10 cents.
My experience with these types of situations is discounts can persist for a long-time, as can premiums. I do not expect the discount will close quickly, rather the short-term gains should be driven by the direction and magnitude in moves of RMK.
China May Block Rare Earth Exports
The Ministry of Industry and Information Technology last month proposed draft controls on the production and export of 17 rare earth minerals in China, which controls about 80 percent of global supply.
Industry executives said government officials had asked them how badly companies in the US and Europe, including defense contractors, would be affected if China restricted rare earth exports during a bilateral dispute.
“The government wants to know if the US may have trouble making F-35 fighter jets if China imposes an export ban,” said a Chinese government adviser who asked not to be identified. Industry executives added that Beijing wanted to better understand how quickly the US could secure alternative sources of rare earths and increase its own production capacity.