Compass Minerals (NYSE: CMP ) is a sleepy producer of a boring product: rock salt. But it has a strong competitive advantage. It owns the world's largest rock salt mine, which luckily is conveniently located near the major deicing markets of the Great Lakes region. This combination of a great mining resource and ideal location provide the company with a wide, crocodile-filled competitive moat.
A leader in salt
Compass Minerals is a relatively small, Kansas City-based company with $1 billion in annual sales and less than $2.5 billion in market capitalization. It generates profits from two products -- salt and fertilizer. It operates 12 production and packaging facilities, including various salt mines and solar evaporation ponds. But most of its business -- more than three-quarters -- is in salt. And most of its salt comes from the Sifto Mine in Goderich, Ontario, the world's largest rock salt mine.
The Goederich resource advantage
The Sifto Mine in Goderich has an annual capacity of 9 million tons of rock salt -- the majority of which is used for highway deicing. The company owns the land and surface rights for the mine, and it has leases on the mineral rights extending until 2022, with right of renewal until 2043. This mine is a unique natural resource. Its salt deposits are three to five times thicker than other competitive mines, an advantage that allows the company to mine salt at lower costs. And it's a huge deposit. At current production, the company estimates that its reserves will last for 122 years.
The Great Lakes location advantage
If the Sifto mine was located in Hawaii or central Florida, it wouldn't be much use. Rock salt doesn't sell for much -- highway deicing salt garners only about $50 per ton. Thus, it's not economical to ship it very far. The ratio of selling price to weight is very low. A profitable rock salt mine needs to be close to consumers. And Goederich, Ontario, is a great location. It's located on the eastern shore of Lake Huron at the mouth of the Maitland River, with access to a deep-water port. It's also right in the midst of the Great Lakes region, which is full of snowy markets in need of deicing salt -- Ontario, Michigan, Wisconsin, Illinois, Ohio, Indiana, Minnesota, and the like.
If you're a long-term investor, it's worth paying attention to companies that benefit from long-term structural competitive advantages. Those are the types of companies that can generate economic profits for years or decades despite competition and reward shareholders along the way. Compass Minerals is just such a company. If you can grab shares at the right price, they should "melt up" for years to come.
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