Monday Morning Links

• Titanium is the canonical process opportunity of the 21st Century, it sits well outside the economy for such an abundant material a clear sign that Kroll + chloride chemistry is the issue. Any viable electrolyte/plasma/FFC type route is a multi sigma unlock for humanity. Noble gases are on the floor, they are cheap to stockpile and tied to industrial air separation processes ie oxygen and nitrogen plants. Rare Earth sit tightly in the economically priced band, their pricing is separation process and demand mix dominated, not scarcity dominated. The kink/flattening at high abundance shows where scarcity stops mattering, beyond circa 10^3 ppm the economy hits the energy floor and energy / logistics drive price illustrating the Earth is well below its carrying capacity for humanity. [Object Zero]
• Half a century after the US and Soviet governments conjured a commercial titanium industry from scratch to feed their cold war machines, we’ve seen virtually no progress in making the metal cheap or abundant. Learning curves that manifested quickly for aluminum and stainless steel simply didn’t appear for Ti— its “idiot index”, the cost of Ti parts as a multiple of the cost of ore and embodied energy, remains >10x that of steel. At $25-$50/kg, titanium is just too expensive to be widely used. The total lack of progress keeps titanium in a reverse-Goldilocks zone where it loses to steel and aluminum on cost, and to composites on weight, and so is used only where its lightness and toughness are absolutely essential. Outside of aerospace, defense, corrosion-resistant process equipment, artificial joints and premium sporting goods, titanium is practically irrelevant. [Orca Sciences]
• The natural gas industry in unconventional fields has a similar supply structure to unconventional oil (supply can be adjusted fairly easily up and down). This already leads to a market that tends to be more oversupplied generally. In addition, two extra characteristics make natural gas bear markets even more prolonged and vicious than in oil. The first is that gas cannot be transported easily (LNG capacity is limited in many areas, and so is pipeline capacity, with trucking being cost-prohibitive), so demand is generally much more limited regionally. Second, gas can be a by-product of oil production (depending on the geology, a well will produce almost all oil, gas, or a mix), meaning that if oil is still profitable, its excess gas production will drive gas prices down. [Quipus Capital]
  
• On current trends, US coal demand will rise this year to about 465 million short tons, driven by higher electricity generation. From one perspective, that’s still down 60% from 2007’s record high and the third-lowest annual consumption in half a century. From another, the year-on-year increase of roughly 55 million tons would be the largest annual jump in 40 years. [Bloomberg]
• The Hyperion deal is a Frankenstein financing that combines elements of private-equity, project finance and investment-grade bonds. Meta needed such financial wizardry because it is already borrowing by the bucketload to build AI, issuing a $30 billion bond in October that roughly doubled its debt load overnight. Enter Morgan Stanley, with a plan to have someone else borrow the money for Hyperion. Blue Owl invested about $3 billion for an 80% private-equity stake in the data center, while Meta retained 20% for the $1.3 billion it had already spent. The joint venture, named Beignet Investor after the New Orleans pastry, got another $27 billion by issuing bonds that pay off in 2049, $18 billion of which Pimco purchased. That debt is on Beignet’s balance sheet, not Meta’s. The notes bear a 6.58% interest rate, much higher than the 5.5% yield on Meta’s comparable corporate bond, and have an A+ credit rating, one notch below Meta’s AA-. [WSJ]
• Would you believe me if I told you this supposed “coal-mining” company is rather capital-light as it doesn’t deploy much of its own capital in mining and has no direct exposure to coal prices? NACCO’s mining segments are really a collection of contracted mining operations in which customers provide capital, carry the mine-level debt, and reimburse nearly all operating costs. NACCO simply collects a cost-plus management fee per ton (or per MMBtu) with inflation-linked adjustments baked in. The accounting makes it look strange: most of the real economics don’t appear in gross profit or operating profit at all. They sit quietly below the operating line as “Earnings of unconsolidated operations”. Here’s where it gets better. NACCO is taking the cash flow from its coal-mining contracts and redeploying it into O&G royalties that don’t carry the same existential risk as coal. Management runs the company with a capital-allocation mindset and a strong balance sheet, choosing durability over leverage and short-term optics. [scavengersledger]
• My analysis of the truly great premium brands is that they are surprisingly indifferent to their shareholders’ near-term demands. Vail has moved away from this, and I have to believe the old way was better. Moreover, if the premium brand in question is also attempting to carry out an operational turnaround, I can’t help feeling that the capital structure and capital allocation policy that would best aid that operational turnaround is a conservative one. If nothing else, a conservative capital structure and capital allocation policy would give Katz some psychological breathing room, as well as some political breathing room when negotiating with Vail’s many constituents who feel the company’s shareholders have benefitted at their expense. [PIB Academy]
• A handful of proposed expansions to major pipelines in the country could noticeably increase the amount of oil that can be exported out of Western Canada. In total, they add up to the equivalent to constructing a large brand new pipeline. Enbridge is proposing four different expansions to its pipeline system, which is the largest in the country. The Calgary-based company announced a final investment decision on Friday to proceed with the first phase, which will cost $1.4 billion US to add 150,000 barrels per day of capacity on its Mainline system and an additional 100,000 barrels per day to its Flanagan South pipeline. The project should be completed in 2027. [CBC]