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Will let Bruno respond as he’s the axe on CLMT, but my 2-cents (not worth much) are below:
First, think the capital needs of the project are about half of what you state, closer to $25-$40MM,
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<p class="MsoNormal">Will let Bruno respond as he’s the axe on CLMT, but my 2-cents (not worth much) are below:</p>
<p class="MsoNormal">First, think the capital needs of the project are about half of what you state, closer to $25-$40MM, and mgmt. more vocal on this front</p>
<p class="MsoNormal">Second, I think your point on bird-in-hand versus playing for the prize is an interesting one and frankly the tension that most mgmt. teams and Boards might be dealing w/ particularly in the developed (not science project) renewables space. But, w/ that said, CLMT mgmt. has been clear for some time that de-leverage and de-hybrid is the focus … so taking some chips off the table in small size helps advance both fronts. Additionally, getting a reputable partner who adds credibility and operational expertise plus helps de-leverage by >$400MM+ would be a real win for CLMT (even if they had to give up 15-20% of a growing pie). As a unitholder, I encourage this move as I think there are 2 opportunities around the CLMT equity: fundy under-appreciation and technical under-appreciation …</p>
<p class="MsoNormal">… which leads to the next point, the Friday earnings release was consistent w/ prior CLMT earnings. While CLMT pre-announced Q4 results over a month ago, the CLMT unitholder base is still very much littered by retail (no surprise given MLP wrapper) and very little institutional. However, if CLMT were to sell a minority equity stake in MRL, this very likely accelerates the decision of a corp conversion and I believe management will affirm this view if you ask them at the 2 conferences they are attending in the n-term … IMHO, I think the technical asymmetry of CLMT equity is possibly more impactful than the fundy as if / when they attract institutional support, the units should re-rate significantly. Bringing in an equity partner and putting the 2 biz units on conservative balance sheet footing is step 1 … but also highlighting the intent to c-corp the Specialty Chems units would be a significant unlock in the unitholder base and put greater transparency on this box.</p>
<p class="MsoNormal">Final point, and worth mentioning, the REGI / Chevron rumor is very interesting … TBD on will likely get clarity on Monday, but REGI has inferior assets but has been working renewable fuels for a long time so some IP to their credit. However, if you assume biodiesel is the way of the past … and RD is the way of the future, Chevron is paying for Geismar and the built-up IP and feedstock relationships. My sense is Chevron (ex-biodiesel which is super high-cost), is paying >$11/gal for the honor to “buy” versus “build” RD capacity. Calumet’s facility in Great Falls is likely lower cost re: logistics and possibly better placed re: feedstocks (last point, some might debate), and the GF facility has >400MM gallons of capacity assuming the SAF market develops as we all think it might. Regardless of Calumet taking a “minority equity” print on GF, they clearly see a valuation that is pushing the higher end of the spectrum than they laid out many months ago (i.e. low-2Bln to low-4Bln). I’m no expert in how the majors think about buy versus build, but am a student of history … I recall a consolidation wave like none other in the late 90s and the catalyst was one player tipping their hand to a “scale wins” mentality (Yergin does a much better job depicting this behavior in The Quest). Not many indpt RD operators out there that trade below 15x EBITDA … I can only think of 1 or 2 that might be willing to sell on top of that … not sure what the REGI / Chevron data point does for Calumet’s negotiating hand (I’m not smart enough), but think it clearly strengthens their stance. We’ve done many consultant calls and spoken to infrastructure funds looking at this space who are willing to pay nose-bleed multiples on RD projects (and they all highlights CLMT’s MRL project being the real-deal). If / when the majors go elephant hunting in this space, I personally think majors win and the infrastructure funds watch the hunt … time will tell, but Chevron might have made the theoretical “buy vs build” argument super relevant. One last point, rumors are there are significant cost over-runs at REGI on the Geismar RD plant (that will take >2-years to complete) … CLMT has a plant that will be fully operational w/ pre-treater in less than 8-months and cash flowing, this is the one unique ind’t asset (i.e. mgmt. open to selling at the right price) that will be operational and not theoretical. Upshot, the REGI / Chevron data pt is too difficult to ignore and might have real implications for the RD industry at large … not to mention, highlights strategics willingness to look through the Build Back Better noise and they likely recognize there is a >10-20-30 ? year regulatory tailwind around renewable fuels and either you get on the train (or your in quasi-liquidation mode).</p>
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<p class="MsoNormal">Taking a big step back, 2022 has a very good set-up. There is significant renewables appetite (witness Chevron / REGI), the trajectory of the biz is on strong footing (my guess is $250-$300MM EBITDA on remainco, bridge is $110MM 2021, add >$70MM on weather 1-time, add >$40MM PB normalization and could be much higher over time, add >$40MM on refining normalization and add some organic growth), the Thursday press release highlights the GP is aligned w/ LP unitholders and has given Mawer the green-light to maximize value (he controls the Board) … additionally, the MRL unlock is here / now (be it a minority equity sale, or an IPO or outright sale), my sense is that mgmt. is working all angles and has a realistic hold-value if a “Chevron-look-alike” wants to play … </p>
<p class="MsoNormal">Hopefully of some use</p>
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Katana
The only reason to sell at the lower end of the Valuation is to derisk the capital structure and mark the asset.
If they sell 15-20 percent at $2 bil valuation and it is eventually
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<p>Katana </p>
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<p>The only reason to sell at the lower end of the Valuation is to derisk the capital structure and mark the asset. <br /><br /></p>
<p>If they sell 15-20 percent at $2 bil valuation and it is eventually worth $3.5 bil they give up at $225 to $300 mil of upside. </p>
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<p>The CVX deal for REGI shows that this space is highly desirable to integrateds. MR asset is top quartile asset but as a stand alone asset it is subscale. Given majors are buying assets there is zero chance of CLMT rolling up renewable diesel assets and getting to scale. So down the road this asset will be owned in a large portfolio. I would personally much rather see some risk taken off the table and the asset partially monetized. I have conveyed that to management and run the math with them. They get the trade off between upside and derisk. <br /><br /></p>
<p>The management transition to me indicates that Steve Mawer and the GP/Heritage is not looking to grow the Montana Reneables business with acquisitions. It more asset development and monetization on the renewable diesel asset. I expect Steve Mawer to focus on cleaning up the MLP structure and the strategic direction. There are complicated tax and structuring issues and it will require significant management and board focus. </p>
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