Red Moon Resources (TSXV:RMK) has a magnificent salt deposit, glittering with pure white perfection. It’s an environmentally friendly project ideally located right at the source of where it’s needed on the Canadian Atlantic coast. But that’s not all. Among Red Moon’s other valuable assets investors have overlooked is an underground renewable energy storage opportunity with the potential to host green hydrogen, a clean resource our afflicted planet is crying out for. This micro-cap stock is perfectly positioned to respond to the green revolution, anchored by a proven management team including a president who built his career with a successful New York Stock Exchange company.
A new name and a clever strategy
Red Moon is planning on changing its name to better reflect the company’s core business, making it obvious to investors the potential that lies behind an incredible rock salt resource, while a planned renewable energy storage spinout of another one of its assets offers investors more ways to win.
The salt business is big
Private equity has completed more than $5 billion (U.S.) in acquisitions in the North American road salt market in the past year, underscoring how big this sector has become.
Salting the roads in Canada and the United States is becoming an ever-more pressing problem and one that needs to be addressed as extreme weather events are increasing and no economic alternative to road salt has ever been found. Salt mines are ageing, and the two countries now import road salt from overseas to fill a supply gap to the tune of 8 to 10 million tonnes a year. Imports shipped over long distances from Chile and North Africa contribute to global carbon emissions.
Annual road salt consumption varies, but it’s estimated that the U.S. uses ten times as much salt on its roads than in its processed food – now that’s saying something!
Quite simply, road salt will be in high demand for the foreseeable future, through all economic cycles, and it’s also worth noting that the chemical industry requires very high-grade rock salt for many everyday products we take for granted.
Stepping into the picture is Red Moon which owns 100% of what’s regarded by many industry experts as the most attractive undeveloped salt resource, high-grade and relatively shallow, in eastern North America, immediately adjacent to critical infrastructure including two ports. The Great Atlantic salt deposit, with its strategic location, gives Red Moon (or a bigger player) the opportunity to serve local and regional markets in Eastern Canada and the Northeast U.S.
An attractive jurisdiction
According to the Annual Survey of Mining Companies, 2020, the Fraser Institute report notes Newfoundland among the top three most attractive jurisdictions for mining investment. The island, the world’s 16th largest, is currently drawing global attention for a gold rush triggered by exciting new discoveries, but this is a multi-commodity district that offers much more to resource investors including salt plus the perfect structures for underground renewable energy storage.
An ancient commodity that never gets old
When looking to invest in commodities, you’ll be forgiven for thinking salt is rarely the first to spring to mind.
Oil, gold, silver, sugar, soybeans, coffee, corn, and lumber all rank high on the list of commodities preferred by traders. But salt is possibly the most widely used commodity on earth. In fact, there are over 14,000 different uses for salt, and scientists are even coming closer to developing a greener alternative to the lithium-ion battery through the use of salt!
So, surely a mineral in such high demand makes for a solid investment opportunity? It would seem so. And with the so-called salt wars heating up, timing is everything.
Is the great North American salt war emerging?
According to legend, the mythical Huangdi, a Chinese sovereign also known as The Yellow Emperor, presided over the first war ever fought over salt. Since then, there have been many more notable salt wars battled out around the world. Such as the San Elizario Salt War between the U.S. and Mexico.
In recent years, supply gaps have forced North America to import much of the salt required to meet its de-icing needs. There are now concerns over security of supply and rising prices, so it should come as no surprise that private equity sees an increasing opportunity in this space right now, along with Compass Minerals (NYSE: CMP), the salt giant among publicly traded companies. A battle over market share (the new “salt war”) maybe brewing between the two.
The pandemic is highlighting the fragility of many of the world’s supply chains, and this is one of them. Having a supply close to market is a distinct advantage. So, in keeping with this line of thought, Red Moon’s undeveloped salt resource so close to key markets is exceedingly attractive.
Acquisition target?
Red Moon’s high-grade salt asset makes the company a potential acquisition target for aggressive private equity and venture capitalists.
The private equity mobs are eager to fill their pension pots with profitable pure-play projects. A Great Atlantic Salt acquisition is appealing because Red Moon’s resource has longevity. With a projected 50-plus-year-lifespan, this far outperforms the usual 10-to-15-year lifespan of gold and silver mines.
New-York listed Compass Minerals International (NYSE: CMP) is a $2.3 billion salt producer that has seen its share price soar in the past year. And on more than one occasion it’s Goderich rock salt mine in Ontario has been the M&A target of Wall Street venture capitalists.
Not to be outdone, German chemical company K&S AG (ETR: SDF) recently sold its Americas salt business to Stone Canyon Industries for a whopping $3.2 billion. This was the culmination of a bidding war between Wall Street major players Cerberus Capital Management, oil conglomerate Koch Industries, and revered private equity investor Advent International.
The fact so many heavyweights were keen to snap up this salt producing giant shows billions of dollars are at the ready for nurturing this most ancient resource.
A highly attractive advanced micro-cap
K&S produces around 15 million tonnes a year in the Americas. By comparison, Red Moon is targeting 2 to 4 million tonnes a year from Great Atlantic (subject to a positive Feasibility Study). Red Moon’s current market cap is approximately $50 million (CDN). This remains speculative but needless to say, it’s not hard to appreciate why Great Atlantic would appeal to private equity.
And another twist in this interesting tale is the interconnected world of mining, where Rowland Howe, President of Red Moon, used to work for Compass Minerals for many years and actually developed the Goderich mine to become the largest underground salt mine in the world.
The time will come when Red Moon captures the attention of the major industry players.
And that’s without taking into consideration the underground renewable energy storage opportunity Red Moon is proposing to spin out to shareholders through the formation of a new company. This move, in itself, is very strategic in multiple ways, as it’ll create a “pure play” salt deal and unlock the value of an asset that’s currently overshadowed by Great Atlantic.
Storing green hydrogen safely
Green hydrogen is one of the most exciting energy transition projects to take shape in recent years. It is zero emission energy with the potential to play a key part of curbing climate change and could be a real game changer in the world’s energy markets.
There are varying degrees of hydrogen and green is the most environmentally friendly. That’s because it’s produced using renewable energy and electrolysis to separate hydrogen from water.
Red Moon owns the Fischell’s Brook salt dome deposit and other nearby ground favourable for additional salt domes, providing very large potential energy storage capability which suddenly makes these assets potentially more valuable than ever.
While salt domes contain a lot of salt, the grades tend to be lower than in bedded homogeneous deposits such as Great Atlantic. But salt domes are becoming highly sought-after and cost-effective underground storage facilities for renewable energy.
Perhaps you’ve heard of oil reserves being kept safely tucked away in ‘salt caverns’. That’s because they provide a large storage capacity.
Salt domes are seen as perfect storage solutions for renewable energy. Caverns are created in the salt domes by circulating water through them which dissolves the salt. Due to the unique rock properties present in these caverns, they present safe storage sites for fluids.
With the Paris climate agreement and ESG at the forefront of company agendas, the race is on to drive the clean energy transition to the next level. Therefore, underground energy storage is expected to play an important role in Canada’s energy future. That’s why Red Moon sees an opportunity to hone in on this and make a more lucrative use case for its salt dome at Fischell’s Brook.
In fact, Red Moon envisions a possible wind-hydrogen combination, making the perfect utilization of the Fischell’s Brook location – this windswept coast would make an ideal spot for a green energy wind and storage facility.
Underground “Battery” storage
While green hydrogen storage is one perfect use case for the Fischell’s Brook property, another is compressed air energy storage (CAES) – otherwise known as underground “battery” storage.
Dumbed down, CAES means compressed air can be stored underground to be released into power generating turbines efficiently when needed, supplementing green energy sources that require backup energy. It’s a technology that’s already in use and being further developed to maximize productivity.
Therefore, the Fischell’s Brook salt dome may well appeal as a store of CAES as it could supply electricity required to balance the load of nearby sources of electrical generation.
Great Atlantic CEO, Patrick Laracy, commented:
“Developments in the energy storage space have been dramatic since we were the successful bidder for Fischell’s Brook. Just like Red Moon was born out of a spinout, we see a great opportunity to launch a dynamic energy storage play anchored by the Fischell’s Brook asset.”
The Government of Canada recently developed and published a “Hydrogen Strategy for Canada” predicting a global market reach worth over $11 trillion by 2050.
This document outlines that Canada is sitting on an expanse of uniquely extensive resources which can be leveraged into the coming hydrogen economy. It can deploy hydrogen domestically as well as export clean hydrogen to Europe, Asia, and the U.S. Altogether this could lead to a $50 billion domestic hydrogen sector, potentially generating over 350,000 high-paying jobs from coast to coast.
A disrupter!
Red Moon, very much a “cleantech” play, is a potential disrupter in the North American salt market with its vision of a state-of-the-art environmentally friendly “salt factory” at Great Atlantic. Add to that the potential for a renewable energy storage opportunity for investors with the Fischell’s Brook salt dome, and you have a powerful combination that will further build on Newfoundland’s attractiveness as one of the world’s friendliest jurisdictions for resource development.
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