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Investors,

The All In Portfolio was down 1.49% this week. Year to date the portfolio is up 109.7%.

The portfolio is 100% invested one single company. That company reported Q3 2021 results on Friday.

Results were largely in line where I was forecasting:

  • EBITDA of $148 million compared to my forecast of $160 million.

  • Price realizations of $113.51 per ton compared to my forecast of $110-112 per ton.

  • Locked in 28% of 2022 production (estimated at 4 million tons) at $195 per ton compared to my $180-230 per ton estimate.

  • Net debt decrease of $80 million, largely from a large one-time tax provision.

Where my forecasts were off was on the cost per ton sold and the conversion of working capital into free cash flow.

  • Cost per ton were $76.62 compared to my estimate of $70-72 per ton.

  • Cost per ton for 2022 are estimate to increase to $88-92 per ton vs my estimate of $70-75 per ton.

  • DSOs increased dramatically on export tonnage sold (according to the Q3 earnings call) to 75 days which significantly increased accounts receivables and working capital. Free cash flow was much lower than I forecasted due to higher working capital requirements.

Overall my forecasts were not too far off from actual results. In the grand scheme of things, one quarter is meaningless. So let’s talk a bit about 2022 and how that could shape up for free cash flows.

  • 28% of met production for 2022 is estimated to be locked in at $195 per ton. The company estimated that met production for 2022 will come in the range of 14-15 million tons or 3.9-4.2 million tons locked in. This equates to $765-820 million in revenue on the locked in tonnage. With a cost per ton of $90 we get $352-441 million in gross profits. SG&A will be around $60-65 million putting EBITDA at $352-381 million. Cash interest payments are forecasted at $45 million for 2022. This puts levered free cash flow before taxes and capex (estimate at 5-15% rate) of $306-336 million.

  • Now remember those estimates are only for 28% of production which is locked-in for 2022. The remainder 72% of production will be sold into the spot market, which is currently priced higher than $195 per ton.

  • For 2022 I am estimating total per ton realizations will come in the $175-180 per ton range. Spot tonnage will likely be higher in the first half of 2022 with the second half tapering off. With costs of $90 per ton that equates to $90-95 per ton in straight margin for 2022. This results in over $1 billion in EBITDA. Capex is estimated at $160-190 million, resulting in free cash flow in the $850-950 million range for 2022.

  • In addition there is still one more quarter left in 2021 which I think the company will generate another $150 million in EBITDA $100 plus million in free cash flow, further reducing debt and legacy liabilities.

It is impossible to forecast any financial results accurately. The name of the game is to forecast results directionally in the right direction while at the same time buying a company significantly below its intrinsic value. Doing this should results in a net positive gain and alpha over the long-term.

My price target on this company has not changed much since the results were released last Friday. I am expecting strong free cash flows in future periods and smart capital allocation from management (de-leveraging the balance sheet). My price target remains in the $80-100 per share range. At the current valuation I plan to hold onto my shares. I probably won’t be selling any shares until after December 31, 2021 for tax planning purposes, unless the share price exceeds my intrinsic value by a wide margin.

Other Updates

During the month of October Alpha Letter Pro subscribers received two new stock ideas (here and here) and a third updated research report on a prior stock I was invested in earlier in the year that I decided to reinvest in.

Since March 2021, Alpha Letter Pro subscribers have received 16 stock ideas. Subscribers to Alpha Letter Pro get 1-2x high quality stock picks per month that I am fully invested in.

Every stock I write up are companies that are off the beaten path and typically too small for most Wall Street hedge funds to get involved. I am a hardcore value investor who focuses heavily on fundamental analysis. I love companies no one else is looking at and go where the beaten and bombed out industries are.

For the month of November 90% of the Alpha Pro content will be updates on Q3 earnings and how I am looking to position my portfolio post-earnings. I posted an update on two companies I hold at this link for any pro members who may have missed it.

If you would like to become an Alpha Letter Pro member feel free to reply to this email or subscribe below. For only $20 bucks per month you get access to top tier research not found anywhere else on Wall Street.

Disclosure: CoinSmart sponsored this newsletter. We have no position in CoinSmart and do not plan on investing in CoinSmart.