CINR - Ciner Resources LP

[Castanza]

CINR - Ciner Resources LP

 

In short they are a low cost Soda Ash producer with mine location in the Green River Basin Wyoming with 51% ownership.

 

Shout out to NoCalledStrikes. I stumbled upon his blog and subsequent excellent write up when Googling "Cinar Resources blog" after reading the VIC piece. He did a heck of a lot of legwork on this last September so much of the info is still very relevant.

 

- https://nocalledstrikes.com/2019/09/23/get-paid-to-wait-with-ciner-resources/

 

Decent primer on the Soda Ash industry

 

https://ihsmarkit.com/research-analysis/sustainabilitys-impact-on-the-global-soda-ash-market.html

 

Upcoming conference

 

https://ihsmarkit.com/events/World-Soda-Ash-Conference-2020/agenda.html

 

____________________________________

 

New information (post covid)

 

- Soda Ash market has reached an oversupply due to less demand. I believe this will self correct as demand picks back up. Management also had this impression on their latest conference call.

 

- Dividend suspended to reallocate capital

 

- All work with third party contractors have been stopped to save capital. No layoffs reported on company work force

 

- New facility planned for Wyoming has been postponed to free up liquidity This facility was going to lower production costs and increase capacity

 

- ANSAC exit has been moved up one year. Looking at late 2021

 

____________________________________

 

Concerns

 

- Pricing pressure and covid longevity are a real risk to liquidity. Management does seem to be taking steps to address concerns.

 

- Ownership structure

 

- Turkey facility is taking a production from the GRB facility. Why is this bad? Because the annual consumption globally of Soda Ash is roughly 60m tons. The Turkey mines have roughly 2b tons in resources compared to the GRB which has 23b tons. I think the total resource tonnage is a bit irrelevant being as the Turkey mines are much better located logistically to service Europe and China. GRB production is down 33% yoy due to current high export costs and pricing pressure.

 

____________________________________

 

Simple Thesis

 

I think this took a big hit simply to the covid environment. Ignoring long term pressure from the Turkey operations I think there is some case to be made for a quick bounce back once soda ash demand comes back. Management did not specifically address a divy reinstatement post covid but I have no reason to believe it would not be when cash flows begin to resemble pre-covid metrics. Lastly I believe there is a good chance this gets consolidated under the umbrella of We Soda (talks of IPO) along with the Turkey operations.

 

No position currently (highly recommend reading NoCalledStrikes post)

 

Thanks

 

 

[NoCalledStrikes]

Nice summary Castanza!

 

Producing Soda Ash from mining trona is cost advantaged over synthetic production and Ciner sits on a massive reserve in Wyoming.  Soda ash is used in a wide variety of applications from pollution control to flat glass manufacturing.  Demand is always going up as the world's population grows and develops with the only exception being (drumroll) ... a global recession.  Covid was not in my playbook when I wrote up my report and its impact has hurt glass manufacturing and caused inventory surpluses to develop and for the first time in forever, prevented CINR from selling its full production.  However, this will eventually clear over time as mining trona is a cheaper process for creating Soda Ash than it is by creating soda ash through energy intensive synthetic processes. (Synthetic production can offer some compensating location advantages).  The bigger issue is management capability.  Management's communication is poor and given its Turkish ownership (Turkey has large trona deposits) it is prone to intrigue and tea leaf reading.  The company is undergoing a Wyoming plant expansion which should be successful given its recent expansion history in Turkey, but management has not been clear about the expansion status, and the company is shifting its U.S. exports from a consortium to using the parent company's Turkish parent. In theory, the transition should be successful as globally Ciner Corp is the leader, but it is not clear which producers will get the most sales to high margin U.S. clients on the East Coast, the Ciner Corp's (the parent) Turkish production or CINR LP's Wyoming production.  Freight is a significant factor in pricing, so while Wyoming production is cheaper to produce than synthetic, that advantage goes away once loaded on a boat and shipped half way around the world.  Since Turkey's trona is produced close to a port and is competitive across the Atlantic Ocean (but not Pacific) with U.S. production shipped by rail to the U.S. East coast, the sales could go either way.  Its a valid question as to which operation gets first crack at the sales.

 

I am currently out of the stock as my confidence that management can execute has gone from reasonably certain with some doubts to "new negative surprises more likely than not".  I am awaiting the next Q for progress details.

 

[Spekulatius]

I think people here underestimate the importance of this being and LP with IDR’s. With this structure

1) The GP calls all the shots

2) GP has an interest to grow in size and issue more LP units

3) IDR’s will be exchanged into more LP units when it is beneficial for the GP.

 

This playbook is well established and I am really surprised, investors still fall for it.

[NoCalledStrikes]

I think people here underestimate the importance of this being and LP with IDR’s. With this structure

1) The GP calls all the shots

2) GP has an interest to grow in size and issue more LP units

3) IDR’s will be exchanged into more LP units when it is beneficial for the GP.

 

This playbook is well established and I am really surprised, investors still fall for it.

 

These are absolutely valid criticisms and are why I pass on 29 out of 30 MLPs.  I would not advocate a long-term holding in any MLP for governance reasons, but my two primary exceptions are for short to mid-term purchases in either a brand new MLP after its inevitable post-IPO selloff or after a meaningful distribution cut. Brand new MLPs usually have a pretty clear ramp of dropdowns lined up for the first few years and are still at minimum IDRs. When new, they also often use a subordinated shares structure for GP units to secure the distribution to non-GP shareholders during the subordination period. PennTex midstream partners was an example of this. The other case is after a distribution cut large enough to ensure the new rate is secure for several years. Distribution cuts which don't secure a high coverage ratio going forward are not buys.  MLP's lack of liquidity makes for occasional opportunities, but in neither scenario, do I recommend overstaying your welcome.

[ContrarianValue44]

On 10/15/2020 at 7:54 PM, Spekulatius said:

I think people here underestimate the importance of this being and LP with IDR’s. With this structure

1) The GP calls all the shots

2) GP has an interest to grow in size and issue more LP units

3) IDR’s will be exchanged into more LP units when it is beneficial for the GP.

 

This playbook is well established and I am really surprised, investors still fall for it.

 

On 10/16/2020 at 11:11 AM, NoCalledStrikes said:

 

These are absolutely valid criticisms and are why I pass on 29 out of 30 MLPs.  I would not advocate a long-term holding in any MLP for governance reasons, but my two primary exceptions are for short to mid-term purchases in either a brand new MLP after its inevitable post-IPO selloff or after a meaningful distribution cut. Brand new MLPs usually have a pretty clear ramp of dropdowns lined up for the first few years and are still at minimum IDRs. When new, they also often use a subordinated shares structure for GP units to secure the distribution to non-GP shareholders during the subordination period. PennTex midstream partners was an example of this. The other case is after a distribution cut large enough to ensure the new rate is secure for several years. Distribution cuts which don't secure a high coverage ratio going forward are not buys.  MLP's lack of liquidity makes for occasional opportunities, but in neither scenario, do I recommend overstaying your welcome.

Could either of you please expand on this? I don't fully understand the ADR vs. LP units idea. Many thanks in advance!