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The “New” Asphalt Plant #13: A Paper Tiger Nextdoor [复制链接]

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离线frankhui
 

(Continuing from #12)

The Crouching Tiger
A major threat hanging over the neighboring communities of the quarry and asphalt plant is:

If the current asphalt plant could not be relocated to the proposed new location, Land-A will not be developed, hence the new owner SCARF could potentially expand the quarry operation into Land-A  and subsequently hurting property values of these neighboring communities .



A Biting Tiger or A Paper Tiger ?
Whether that crouching tiger is a biting one or a paper one depends on the following conditions:

#1: Will a pure quarry operation ever become cash flow positive for it to be self sustainable, assuming no competition and unlimited demands?

#2: Is the demand there to justify quarry expansion, regardless of the cost of capital?

#3: Can it compete with other low cost quarries nearby?



The Cash Flow on Paper
SCARF purchased this 750-acre land at ~$100M. Assuming the cost of money to be 5% and the property tax at the same rate, then the annual cash bleeding will be ~ $6M:

#1: $100M x 5% = $5M / year;

#2: At $4.8M valuation, the 2019 property tax was $53k. At $100M valuation in 2020, SCARF the new owner will be paying $1.1M / year or less, depending on the valuation split between the land & the aggregates reserve.


If the reserve is valued according to demand expectations, its value could be as little as ~$10 M, and the property tax will be ~ $0.9M / year. By raising the reserve valuation on paper, regardless of the demand constraints, the annual property tax may go down to ~ $0.2M.

So what is the annual incoming cash flow the current quarry brings to SCARF today

#1: The average annual aggregates mining volume since 2009: ~ 400K tons ( This is demand limited. It was 5x higher historically );

#2: Assuming the royalty rate: $1 / ton;

#3: Expected annual royalty income = 400K x $1 = $0.4 M / year


The quarry must expand ~ 13x today’s size in order to be cash flow sustainable:

#1: ( $5.2M / year cash bleeding ) / ( $0.4M / year royalty income ) = 13;

#2: As noted above, the historical peak was only about 5x, when the demand was high;


The cash flow model could not justify a long term pure quarry operation.


The Demand on Paper
Observation from the historical aerials images of the quarry site since 1988 shows, most of the quarry mining was done prior to 2007, at about 2M tons / year on average. The mining volume since 2009 was insignificant compared to the 20 years prior. A closer look shows, all that had been mined in the past 10 years was less than half of the bottom area, which amounts to ~ 400K tons a year, or about 20% of the peak rate. The combined forces of limited local demand in an already highly developed area,  and the competition from neighboring quarries caps the mining to that pace, regardless of the operation and reserve capacities.

At that pace, just another layer of granite will last through 2040.  What will the 750-acre become by then?  Where is the new demand to justify the opening of a new mining pit?


The Competitions on Paper
A “quarry” search on google map will bring you at least 10 in the area. Apparently, granite is not such a rare commodity and people mining on land cost 20x less will out compete.


Throwing in the overwhelming financial pressure to develop the whole 750-acre, any threat of expanding quarry to either Land-A or Land-B is completely toothless. It is a paper tiger after all.


(To be continued: more on the “Else”)

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