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Well, this is not a new name to the VIC community, but most dollars invested in the capital structure in the last 6 years have generally gone green so I think its time to revisit where we stand today.

I for one have actually enjoyed mip’s and other bear’s comments. No need to downvote this to 2 stars based on that…I’ll give you plenty of opportunities to do so if you continue reading. Needless to say, there are many reasons to be short names, the market, take your pick. That being said, I believe CLMT stands out as being one of the few exceptions where the fundamentals /mgmt. of the business have done nothing but improve / execute while the share price continues to remain at best rangebound.

Don’t fight the fed. Alternatively put, just follow the liquidity. Well, that brings us to the current picture for CLMT. The name continues to be plagued by the fact that it trades somewhere around 160k/shares per day or roughly .2% of its shares outstanding.

Very much could be hearsay, but it would appear that there was shuffling of shares towards the end of Q2 and Q3 by a top-10 holder. This may be an ongoing technical issue, but our view is that fundamentals will eventually win out.

Todd123 has done yeoman’s work in bringing this board up to speed initially and has provided consistent and insightful comments over the years.

One of the purpose of this writeup is to highlight the earnings power of the specialty business.

If you are familiar with CLMT, you either want to be involved or don’t and it likely is a function of your tolerance to endure the illiquidity in the name. If you have come across the name in the last 12 months or so, you are probably aware of the glaring sum of the parts story giving this name multi-bagger potential.

Just to refresh:

$1.0 BB Mcap

$1.45 Net Debt

$2.45 EV

CLMT owns an 85% interest in MRL which Warburg Pincus just marked at $2.25 BB (pre-commisioned).

Netting that amount out, you have the Non-MRL business trading at $538 mm. This business just put up $175 mm EBITDA in Q2. Yes, that business is overearning and Montana capacity will come down post-MRL conversion. But, cracks haven’t exactly dropped like a rock.

The above is the 2-1-1 crack which is a fairly good representation of the dynamics that determine CLMT’s NWLA and Montana refining exposure.

The world changed in many ways when Putin entered Ukraine. But the natural gas flows that have slowed down have turned into diesel flows that have picked up. I guess anything could happen, and I guess Putin could bend down and kiss the West’s ring tomorrow. Seems unlikely.

But its probably more likely that given the fact that mgmt. has been buying shares for the first time in years, and their bonds are trading above par that perhaps this name may be worth a second look.

There is a shot on goal for MRL to be worth multiples of its latest mark we wouldn’t be surprised if they put up $100 mm EBITDA for Q3 and announced intention to look at buying back shares. These points seem relevant.

We are still building out the below, but we weren’t terribly off on the backtest of Q2 and believe Q1 ’22 and Q4 ’21 are largely off due to the inherent operating leverage that happens when cracks do start mooning. In spite of being half baked, we figured we’d at least share with the board our interpretation of the business. We used Colonial 85 prices for historical numbers and then grabbed Gul coast futures to try and project out the next couple quarters.

The point here is that the underlying business is probably trading at close to 1x ebitda. They have already earned 2 of those quarters in Q2 and Q3. I know this is starting to sound like a tanker setup, but once everyone stopped day trading those they actually turned into a pretty nice ’22 trade.

Oh, and in case anybody cares what MRL annualized numbers would be if this current margin environment ensued, then we could see $360 mm in ebitda just on the 85% interest. MRL will have installed the pretreater and hydrotreater by the end of this year and fully operational for the beginning of next year.

There will be flexibility to increase that $360 mm ebitda by substituting away from Soybean Oil. Oh and if you really want to know mgmt’s game plan, it probably revolves around turning MRL into the largest SAF producer. That means even more guaranteed tax credits, an extra $1 in ebitda/gallon and finger in the air maybe even an ebitda multiple that may begin with a 2-handle. I’ll spare you the math, but needless to say the parent’s shares won’t be begin with a 1-handle.

Here was our favorite quote of the last conference call after the company announced record earnings and the MRL transactions:

Roger Read

Thanks. I look back in my notes from years ago and it looked like you were going to sell all the refineries. I think we had an estimated value of Montana 300 million, so selling 14% of it for just a little bit less than that is pretty solid.

We believe the market is giving us a gift after trading down to what prices were before this announcement. We don’t have to get into it now, but getting rid of Oaktree was extremely savvy and necessary. The company can now raise federally assisted debt in the form of a green term loan or a local bond which was not possible before. Oaktree also had the ability to insert themselves into the conversation with any strategic interested in MRL.

In conclusion, we don’t have a price target for CLMT, but its multiples of where it trades today.

Catalyst

several...