Disclosure: The author is long units of CRT, PBT, and SJT. None of this article is financial advice. Please read the full disclaimer here.

My favourite opportunities are those where you can buy a long-term, difficult-to-replace asset trading at distressed prices for short-term reasons. Even better is if this asset has zero marginal cost scaling, perpetual capital compounding, and therefore asymmetric upside.

A well-structured royalty business fits the bill on the latter, yet these rarely trade at distressed prices. The two royalty trusts presented in this article do not exactly represent the latter… at least not yet. But they do appear to represent the former; as being natural gas-focused royalty trusts, they now trade at distressed prices due to poor North American natural gas pricing and structure-inflicted wounds.

Today, North American natural gas is the cheapest molecule of energy found on earth. But once upon a time, the gas-oil ratio was closer to the BTU content ratio (6:1) — a far cry from natural gas’s shale era abundance, which at times has driven the ratio closer to the 20:1-30:1 range. Natural gas is currently widely loathed as an investment, yet change may be in store as it is on the precipice of unprecedented demand growth from both LNG export and power demand buildouts, and infrastructure constraints could slow a supply response. Natural gas prices, at least with a five-year time horizon, appear now to be skewed to the upside.

These natural gas royalty trusts stand to benefit not only from rising commodity prices, driven by inflection points in U.S. power demand growth and LNG exports — but also from 1. new technology revitalizing a century-old basin that is set to lift production, and 2. from the potential for activist investors to push indenture amendments that modernize these outdated structures and unlock massive value currently being squandered by the existing royalty model.

Current natural gas sentiment sits far closer to despair than exuberance; combined with the factors outlined above, this creates what poker players call “multiple outs.”

Background

The year is 1980. Southland Royalty Company had just carved out two new entities that, with their pass-through trust structure, would avoid double taxation of cash flows from oil and gas properties in the San Juan and Permian Basins and distribute royalty income directly to unitholders. At the time, this was quite the entrepreneurial innovation and functioned as a tax-efficient spin-off of these royalty interests. These two trusts exist today as NYSE-listed San Juan Basin Royalty Trust (SJT) and Permian Basin Royalty Trust (PBT). 11 years later, the same team did it again, spinning off some carved-out royalty interests of Cross Timbers Oil Company (later XTO Energy) across New Mexico, Oklahoma, and Texas — IPOing the new entity as Cross Timbers Royalty Trust (CRT) in 1992.

The structure of all three royalty trusts is quite similar. The trusts cannot repurchase or issue new units, cannot purchase or dispose of royalty interests, and have strict requirements around the issuance of debt (only to fund Trust administrative costs). The royalties are structured as net profit interests (NPIs), but in this case, not all the NPIs are created equal. Take SJT, with its pure San Juan Basin, New Mexico exposure; its royalties are structured as 75% NPIs and are calculated as gross proceeds less production costs and capital expenditures. CRT has this type of royalty on properties in Texas and Oklahoma as well, but also features 90% NPIs in NM, TX, and OK, which, although a profit interest in name, are calculated as revenues less costs for property taxes, transportation, and marketing, but importantly do not include production or development costs.

The distinction between the two NPIs is important. These assets were meant to decline over time and pay out royalty cash flows — and that’s that. Vertical dry gas wells were cheap to drill, and therefore the 75% NPI was not overwhelmed by capital expenditures. In the modern age of horizontal drilling, this is no longer the case — and is the primary reason why SJT has not paid a distribution in over two years. In 2024, the operator of San Juan’s properties, Hilcorp, announced it would be spending $34 million to drill two new horizontal wells in the Mancos shale of New Mexico’s San Juan Basin; this was up from 2023 capital spending of just $4.4m. Because of this, “excess production costs” were created on SJT’s end; production costs and capital expenditures swamped royalty revenues, and the distribution needed to be suspended until these excess costs were recovered. Low in-basin natural gas prices have exacerbated the problem, and today SJT still has $7.2m in excess production costs, $999k drawn on its line of credit, and must replenish a $2.0m cash reserve balance before distributions can resume. This is not a good outcome for a trust whose sole purpose is to distribute cash flows to unitholders.

Wrong Structure for Today’s Environment

A good royalty should benefit from inflation through its cost-free exposure to the underlying asset. In the case of oil and gas, it should also benefit from a growing reserve base; producers spend capital to develop a resource, and this capex contributes to future net asset value to the benefit of a royalty owner (who does not have to put up another cent). Throw in the ability to repurchase shares or purchase new royalties, and you have a perpetual capital compounding machine. SJT’s NPIs were great for the San Juan Basin of the past, but with large capital expenditures targeting the Mancos formation, capex that, in a proper structure, would be helping distribution-seeking owners has turned into a nightmare. This structure is largely why the opportunity exists today. Thankfully, as was the case with entrepreneurial individuals setting up these structures in the past, there are also individuals willing to bring these trusts into the modern age.

Playbook for restructuring a royalty business

Texas Pacific Land Corporation (TPL) is a name many will be familiar with. Its long-term performance has been phenomenal, and it shows the compounding power of a well-structured royalty business. Before 2021, TPL was structured as a trust — that was, until activist shareholders Eric Oliver (SoftVest L.P.) and Horizon Kinetics got involved in modernizing TPL. While Texas Pacific’s unique trust structure granted it more flexibility than the three names listed above, it still had significant drawbacks that were ultimately remedied when it converted to a C corp. In May 2026, Oliver took action again, this time seeking to amend the structure of Permian Basin Royalty Trust through a merger with Blackbeard Holding’s US Land Guild. This transaction, if approved, creates an entity similar to TPL and would crucially restructure the Trust’s net profit royalties into 15% revenue royalties and also allow the new C corp to repurchase units and acquire new properties. The new entity will modernize the structure to benefit from a growing reserve base, generate more consistent distributable cash flows, and create a platform for future compounding, while also widening its investable universe to those unable to own Trusts.

It would appear that this type of restructuring is also possible at the smaller but related trusts in SJT and CRT — and this catalyst may be more than just a hunch.

Eric Oliver purchased CRT units almost every week from March through the end of June this year; SoftVest now owns over 16% of Cross Timbers. It took around 13% ownership of PBT for Oliver to implement trust amendments and a potential merger there. Over at SJT, Horizon Kinetics holds around 15% of the shares (HK write-up on SJT is a must-read).

The merger with USLG is a key part of the PBT-SoftVest playbook, and a merger would likely need to be part of any value-unlocking transformation at CRT or SJT — especially given their small size. Hilcorp is the main operator for both SJT and CRT’s New Mexico properties and would likely need to be involved in any deal, while Argent Trust Company is the trustee for SJT, CRT, and PBT. I am speculating here, but given the significant overlaps and the shared interest of SJT and CRT’s major unit holders in modernizing the structures and adjacent land positions (see maps below), it would make a lot of sense to combine CRT, PBT, and SJT in some form. Who knows what will happen, but that would be quite an intriguing combination!

Mancos Shale: Reviving the San Juan

While amending the trusts is an interesting dynamic, it is but a pillar of the thesis for these natural gas royalty trusts. One of the “outs,” if you will. For now, the value lies in what is under the ground —potentially 20 Tcf of dry gas in the largely untapped Mancos Shale.

The San Juan Basin of northwestern New Mexico is one of the largest and oldest producing dry gas basins in the United States and has produced >42.6 Tcf over its life. But since the early 2000s, when it produced 4.5 Bcf/day, it has been a basin in decline. In recent years, oil majors like ConocoPhillips and BP have exited the basin to target hotter plays in the Permian. Smaller private firms filled the void, and Hilcorp (Jeffrey Hildebrand), LOGOS Energy and Mach Natural Resources (Tom Ward of SandRidge, Chesapeake fame) have entered the basin in a large way, targeting the prolific Mancos Shale. LOGOS in particular has drilled some incredible dry gas wells in Rio Arriba County, per a January 2026 press release:

Clearly the gas is there, but natural gas is far from sexy right now, and the basin’s recent successes have been overshadowed by more glamorous oily areas like the Permian. The Mancos Shale enables the San Juan Basin to grow once again. TPL and PBT show what can happen if both production and pricing on royalty assets improve. Higher natural gas prices lead to more drilling and production by the operators; every dollar put towards future production is an investment which supports the net-asset-value of the royalty trusts. These trusts currently cannot issue new units, meaning production growth translates directly to production per unit growth and, if margins remain stable, then growth in distributable income per unit. Below is an example of the Carracas Gas Field in Rio Arriba County, New Mexico from 1953-2023. You can see how one property can be transformed by recompletions, infill drilling, and new technologies like horizontal drilling that all enhance recovery of the resource and drive the underlying asset’s net asset value (this field was divested in 2000 for $19 million and then again in 2014 for $225 million).

San Juan Basin Royalty Trust has just one conveyance with properties across San Juan and Rio Arriba Counties in New Mexico. Cross Timbers has five separate conveyances held by the trust. Notably, CRT holds significant acreage in potential Mancos areas of the San Juan Basin as well as other less contiguous acreage in the Permian Basin of Texas and New Mexico. All five of CRT’s conveyances are independent, and excess production costs on one do not prohibit other conveyances from paying distributions.

SJT’s basin-wide royalty package grants it greater exposure to new wells being drilled on its land; the largest risk for SJT is that capex spent on the Mancos continues to swamp proceeds — a Hugoton Royalty Trust outcome is not totally out of the picture here, and this risk needs to be appreciated. CRT is largely protected in this respect due to its cost-free royalty structure in New Mexico. While production is a key element, the price one receives for their resource is also crucial to inflecting distributions.

A Brighter Future for Gas Pricing?

My view is that over the mid-to-long term, natural gas price movements are skewed to the upside. Demand growth over the next five years seems unprecedented; U.S. electricity consumption is growing for the first time since the early 2000s, and LNG projects coming online will only continue to draw multiple new Bcf/day leading into 2030. This could quickly shift a volatile, oversupplied gas market into a deficit.

There is debate about how quickly future supply will be able to react — this lag has historically resulted in spikes in the price (and is what drives a cycle). My focus is almost always on supply when analyzing a capital cycle; with natural gas, a factor to consider is that there may be infrastructure constraints and an inability of fracking/drilling units to keep up with surging demand requirements in the coming years.

In general, the supply side is more reliably calculated than future demand, but in today’s natural gas market, supply changes feel tougher to clock. What I do know is that human psychology in business cycles is timeless. Most will rush to deploy capital in a space when it feels good. Very few have the stomach to invest when it feels risky — yet when it feels worst is likely the near-optimal time to get interested. Natural gas feels like it’s much closer to the latter than the former.

Trust convexity to natural gas pricing

The positive skew I see for natural gas prices over the next five years, combined with depressed unit prices, makes SJT and CRT intriguing, especially given their strong dependence on gas pricing (~97% of SJT and ~2/3rds of CRT revenues are attributable to natural gas). SJT’s distributions historically (pre-suspension) have a ~94% correlation with realized natural gas prices. While this is excellent when prices cover costs (production costs average ~$1.60/Mcf since 1Q24), and distributions can be made, it also means that when prices drop, the distribution suffers. SJT is currently about $10.2m short of being able to resume distributions; modelling with $2.50/Mcf gas prices, I conservatively estimate distributions will resume in the middle of 2028. At face value, not great. Yet this is assuming annual average capex of $14m for 2026-2028; $13.55m is guided by Hilcorp for 2026, down from $14m, but at current gas prices this is likely to be further reduced in 2027/28 (see chart below for how unprecedented the current capex spend is).

There is risk, but there is also massive convexity to gas prices, and the convexity of SJT’s distributions to natural gas prices is really incredible. Below $2/Mcf gas, SJT struggles and risks running into issues with their line of credit; at $2.50/Mcf it slowly recovers, but at $3.50/Mcf natural gas starting in 3Q26, even assuming the flat capex above and flat production, distributions could resume as early as 1Q27, and at a $2.50 unit price, the 2027 distribution yield would be ~22% on cost. In the past decade (a rather weak one for energy prices), SJT has paid out $5.51 in distributions per unit, despite zero payout for the past two years.

For Cross Timbers, the three 90% NPIs in NM, TX, and OK are the cash cows of the trust — their distribution power ebbs and flows with commodity prices but should provide positive distributions regardless of capital expenditures or commodity pricing. Two of CRT’s conveyances are similar to SJT’s 75% NPI and are currently underwater on excess production costs but represent only a 10% share of attributable reserves. CRT’s excess production cost conveyances, however, are largely oil weighted, and oil prices have improved markedly in recent months. If these 75% NPI’s, which are essentially dormant assets, inflect back into the black, they could become a nice contributor to distribution power.

With their convexity to commodity pricing, the unique and difficult-to-replace assets held by Cross Timbers and San Juan stand to benefit from improving oil and gas prices.

Risks

Permanent loss of capital is the ultimate risk in any capital allocation decision. San Juan Royalty Trust, while offering greater upside in an optimistic scenario, also faces the risk of future capital impairment. My math suggests SJT needs in-basin gas prices to average ~$2.87/Mcf for 2H2026 and 1Q2027 to bring the excess costs down to zero and begin making a dent in the line of credit by the end of the first quarter (again assuming the full Hilcorp budget is spent and ~$1.6/Mcf production costs) — with winter months still ahead and strong heating demand in July/August, this is not far-fetched but definitely not a slam dunk (note, El Paso San Juan gas is currently over $3, and at a premium to Henry Hub). I prefer CRT because it holds much less risk of near-term permanent capital loss given the structure of the 90% NPIs versus the 75% NPI held by SJT. There is simply more staying power with the 90% NPI structure. In general, the key risks I see are:

• Lower-for-longer natural gas prices: SJT continues to draw on its line of credit and death spirals under the burden of excess production costs — Hugoton-style. Currently, $1m is drawn on its $2m line of credit. In recent months, they have been drawing at ~$50k per month.

• Operators could theoretically abuse 75% NPIs until the unit price hits zero. For SJT, Hilcorp could drive the unit price to zero through capex spending and then purchase for next to nothing in a liquidation scenario.

• Poor performance of underlying properties: Hilcorp's recent horizontal wells (culprit of the excess production costs) created a short-lived bump in production and appear underwhelming for their cost.

Catalysts

• Trust restructuring and converting the NPIs to revenue royalties would be a dream scenario for both trusts. If done properly, this restructuring could be an incentive to develop royalty-held properties. A cost-free royalty on vast and prolific natural resource deposits would be an incredible real asset, capital-light business that should benefit for years to come (an interesting X thread touched on this point back in 2024). This scenario is the power-law upside.

• Continued field development on royalty properties. Particularly in the emerging Mancos Shale play. CRT has significant 90% NPI (mostly cost-free) acreage in Rio Arriba County and in the Permian Basin and stands to benefit from continued drilling activity in its current form.

• Commodity prices improving.

• Resumption of distributions at SJT should trigger a rerating as it effectively converts from a short-dated call-option-type instrument to a long-duration call option with a yield.

That is all for this article. If you have any questions, feel free to reach out in the comments or on X (@athelascapital). Please do let me know if you find any mistakes in anything I write so that I can make corrections.

Thank you for reading.

As always, this is not investment advice. Always do your own due diligence, and please read the disclaimer here.

This article will provide updates for the three past ideas I have written about on this blog: Scully Royalty, Transocean, and Tronox.

These three companies represent businesses owning assets that I believe are extremely difficult to replace. Real assets with a replacement cost far above their market value. While the market value of these businesses may fluctuate (at times violently), the underlying asset values to an economically motivated owner remain relatively stable. While technology, AI, and semiconductor businesses have been in the limelight, their ascent has masked the sudden decline of businesses long thought to have had defensible competitive advantages. Software stalwarts like Intuit (-60% from peak), Adobe (-65%), or Constellation Software (-45%), were thought to possess impossible-to-replace assets, but in technology, of all things, it is probably best to expect the impossible.

One thing that has remained constant (at least since 1200BC) is humans’ use of materials like iron to make simple tools, weapons, and jewellery. While the uses for iron have grown immensely over the past 3000 years, the underlying fact is that we still use it and have no economic way to replace it. The same goes for nearly every chemical, metal, or hydrocarbon commodity. These are truly foundational to our modern world. Yet financial markets and real asset values very often differ; this can be a source of great opportunity (energy stocks during April 2020) or an endeavour of great risk (energy stocks in 2014). My goal with this blog is to find those businesses that are much closer to truly undisruptible, such as a royalty on a first-rate iron ore mine, that are temporarily available at some value far below what they are truly worth.

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Disclosure: None of this article is financial advice. Please read the full disclaimer here.

Capital cycles have long fascinated me, so much so that they have become an integral part of my personal investment philosophy. This article will provide a relatively high-level overview of the process I use to evaluate and make decisions about cyclical businesses — particularly those in the natural resources space. I hope that this article also provides some context for other writings on this blog.

I would suggest that the reader try to develop their own unique style. There is no perfect method to evaluate cyclical businesses; this is just what has worked as part of my ever-evolving thinking on the matter.

This article will cover how I think about individual business evaluation within the broader context of a business cycle, the indicators I use to monitor where a cycle is, and other factors, such as structural changes, that may provide unique opportunities beyond just trying to time cyclical peaks and troughs.

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Scully Royalty appeared to be uninvestible. I do not use that term lightly. An amalgam of governance red flags, Malta-based holdings companies, and China links has kept Scully off the radar of most institutional investors who wouldn’t touch trash like this with a ten-foot pole. Without major changes at the governance level, Scully seemed doomed to continued capital destruction and share price stagnation.

This all changed in January, when shareholders received long-awaited good news. A successful proxy battle, led by long-time shareholder MILFAM LLC, resulted in 59% of shareholders voting in MILFAM’s favour, securing all five board seats and allowing MILFAM to fire the former CEO for cause. This victory, pending an appeal, is what piqued my interest, and I now believe Scully presents an extremely compelling value-unlocking story.

Scully Royalty’s primary asset is a 7% net-revenues royalty interest on the high-grade iron ore produced from the Scully Mine in Newfoundland and Labrador. The royalty asset alone could be worth multiples of the current share price. This is a great asset. The problem is all the other baggage.

The recent monumental changes at the governance level have gone largely unnoticed by the market. Risks remain, but the risk-reward going forward is quite attractive.

In this write-up, I cover why this opportunity exists, the governance changes taking place, and how these changes could unlock significant value for Scully Royalty shareholders.

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Deepwater drilling equities have been on the sentiment rollercoaster this year.

Spring: contract white space panic, Liberation day tariff sentiment meltdown.

Fall: positive contract news flow, stable dayrates, growing backlogs, and utilization looking quite robust near the end of 2026.

These swings provided ample opportunity over the spring and summer for enterprising investors to purchase great assets at distressed valuations — all while earnings visibility for the underlying assets was actually improving!

Yet energy as a whole remains the most hated industry in the world. Energy as a share of the S&P500 is under 3% (nearing an all-time low), while a barrel of crude oil is now cheaper than an ounce of silver. Outside of the COVID-19 period, we have not in recent history seen a barrel of oil this cheap in terms of gold — one ounce of gold today buys you 74 barrels of WTI oil.

As Benjamin Graham wrote: “Mr. Market is there to serve you, not guide you.”

There will always be noise. Today, this noise manifests itself as fears of a “supply glut” (or even a super supply glut!) in the global crude market. Before this super glut, the fears centered on peak oil demand, an event so consistently modified to be further out in the future that it has been difficult to take seriously. What happens when the supply and demand lines cross, and suddenly the world comes to its senses that we are going to need a lot more oil for a lot longer than the consensus believed? Where is the new supply coming from? Are there enough drillships to handle the needed return of offshore oil exploration?

The global pace of oil discoveries will need to rapidly accelerate over the next decade. Vicki Hollub is part of a growing cohort of industry that highlighted, back in October, that “it is a significant issue when the most substantial oil discovery in decades can only satisfy one-third of global annual demand.” With onshore shales potentially rolling over, security of supply a priority for consumers of energy, and many of the world’s major oil fields in decline, perhaps it is time for offshore exploration to make a comeback.

This article will focus on the broader exploration story, how this affects drillship utilization, and how the deepwater drilling companies stand to benefit.

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“Optionality will take us many places, but at the core, an option is what makes you antifragile and allows you to benefit from the positive side of uncertainty, without a corresponding serious harm from the negative side.”

Nassim Nicholas Taleb

Disclosure: The author may own securities discussed in this article. See individual disclaimers throughout. None of this article is financial advice. Please read the full disclaimer here.

Part I: “Rare” Earth Elements and Revival of the Old Economy

Rare earth elements (REE) have been all the buzz, as China and the United States have continually engaged in a spat regarding exports of the critical elements. This issue is not a new one; rather, it is a recurring concern that rears its head every few years when China and the West have a trade dispute. Historically, nothing has really been done to address the actual issue, which is: China holds a near monopoly on the production (~70% of the world total) and processing capacity (~90% of the world total) for most rare earths. Maybe this time will be different. Chinese dominance is a concern for US policymakers, who, citing national security concerns, have now sought to create stockpiles of key elements used in defence applications. I will get into the reasons why I believe China has been so dominant in the rare earth space, or rather, why the West has not developed the extraction and processing capabilities to handle REE, but simply, it has been an outcome of two very different economic approaches.

Despite being classified as “rare earth elements,” these elements are actually quite abundant in the Earth’s crust. Cerium, for example, is as abundant as copper and nickel and is about 1000x more common in the Earth’s crust than platinum. The catch is that these elements from 57-71 (La-Lu) on the periodic table are not found in concentrated clusters, but rather are spread out and found in mixed rocks such as monazite, often containing radioactive thorium and uranium. This dispersity is a reason for China’s domination. Because of the high economic and environmental costs associated with separating REE from rock such as monazite, the West has effectively outsourced this externality to low-cost, low-regulation Chinese mines/refineries.

Recent history shows that many North American critical mineral mines and processing plants are uncompetitive with Chinese peers unless subsidized by taxpayers. If rare earths catch on in the West from a production/processing perspective, something will fundamentally have to change about the economics to allow them to stay in operation (and maybe eventually profitably, without government involvement). In this case, the abundance of reserves is not a barrier to entry; there are lots of rare-earth deposits globally — the Chinese simply do not face the prohibitive environmental, labour, or regulatory costs that Western producers do. Chinese state involvement has also enabled Chinese strategic resource companies to obtain an extremely cheap cost of capital (Zijin Mining, for example, has a weighted cost of debt just above 2%). This has allowed Chinese companies to increase volumes at prices where Western peers are underwater. It has also allowed the Chinese to invest counter-cyclically, a massive strategic benefit in cyclical businesses, and is an ability held by few non-Chinese old economy companies. Western states and capital markets, with their high time preferences, have struggled to support long-lived investment activities such as mining and refining, where the ROI is measured in decades. Cost of capital in the West is usually closer to atleast 10% for these kinds of projects, with hurdle rates in the 15-20% range. Given this, capital in the West has instead gone towards servicing the consumer economy with its instant gratification and shorter investment payback periods.

Swings in commodity prices are as old as markets themselves. If commodity prices get elevated, there will, if possible, be some sort of supply response. Take the post-COVID lithium craze (when “all of a sudden” massive lithium deposits were discovered), which saw the lithium carbonate price rise more than eighteenfold before falling 90% back to its previous level. Or like the semi-fictional story of a Texas landowner suddenly discovering an oil reservoir seemingly the size of Ghawar under his dust-collecting ranch every time the crude price gets high enough; more resources will always be “discovered” if the price incentivizes it. A few well-capitalized and diversified mining companies have managed to survive the swing in the lithium price, but many were absorbed or restructured — a fate that would likely accompany such a cycle in the Western REE space. Chinese players, with their state support, have managed to benefit from these cyclical troughs through the acquisition of Western production and further capital investment. The problem for Western players is that, while already burdened by higher fixed and variable costs, the Chinese are willing and able to produce through the cyclical doldrums, which, by attrition, has had the outcome of relocating much of the global industrial base to mainland China. Many old economy businesses, particularly in Europe, where crushing energy prices make most profitable industrial activity impossible, have now permanently shut down operations.

This is not an argument against developing Western REE resources; on the contrary, we must free our industrial businesses from prohibitive costs that make them globally uncompetitive and instead allow companies to pursue entrepreneurial solutions to efficiency and cost-reduction. Take the case of the Mountain Pass Mine in California, which possesses one of the largest REE reserves in the world. Despite this endowment, the mine has been hampered by “prohibitive regulations for mining practices” while “environmental ramifications of refining ores gradually undermined the profitability”; Molycorp, the previous owner of the mine, declared bankruptcy in 2014. The mine, now operated by U.S.-Government-supported MP Materials, has reopened as of 2018, but remains the only commercial REE mine in the United States, and until April 2025, “nearly all REE ores from the mine [were] sent to China for refining” (source). The re-industrialization of the Western world could become a major theme of the next decade, and with sectors such as defence and healthcare depending on these critical minerals, it seems as though domestically produced/refined rare earths could be here to stay — if they can at first get off the ground.

Interventionists, despite their atrocious track record of top-down economic planning, will, out of necessity, be required to reverse their crippling policies that have restricted industrial production in their own countries in the first place. The West cannot simply outsource production of all things made of matter, lest they fall victim to the strategic bottlenecks currently in place in the global economy. A society based on new economy businesses like SaaS and retailing will not survive unscathed in the coming age. Environmental policy needs to get away from “out of sight, out of mind” and realize that the best labour/environmental protections exist right here at home. Therefore, if we truly care about the environment, at home is where we should be letting the industrial economy flourish. Bob Robotti makes a great case for our North American energy abundance becoming a competitive advantage — see here. Despite decades of globalization, Western governments will, at some point, realize that having a healthy industrial base is paramount to advancing our civilization. It’s time for Western industry to make the periodic table great again.

Part II: Videre ultra visum, “vision beyond sight”

Now to the crux of this article. Old economy companies mining for commodities like coal or titanium have, for decades, been disposing of waste products in the process of getting at their targeted resource. It turns out, these waste products, sitting in piles of rock or in tailings ponds, could be quite valuable as the other elements of the periodic table that they are comprised of have found a use in the new economy. One example I came across a few years ago was that of Sibanye-Stillwater (disclosure: no position), a gold and platinum-group metals producer based in South Africa. The company listed significant uranium reserves at its Beatrix mine, a gold operation put on care and maintenance in 2023. Along with a similar situation at their Cooke mine, the combined 78.7 million pounds of uranium were not deep underground with the gold, but rather, the uranium was sitting in tailings ponds and had been accumulating as a byproduct of mining since the 1940s. Being in the tailings ponds meant that these resources could be processed much cheaper than in a traditional uranium mine, and hence became an interesting option to Sibanye in a rising uranium price environment. Fast forward to 2024, and Sibanye had now monetized part of their uranium assets, going 60/40 with Neo Energy Metals at Beatrix 4, plus acquiring a royalty stream on the project. Seems like a pretty good outcome for a product discarded as “waste”.

In another example, I just recently became aware of a similar situation unfolding at Ramaco Resources (disclosure: no position), where, having somewhat followed the name for its coal exposure (another critical resource), I was amazed to see the parabolic share price movement this year owing to its massive REE discovery at the Brook Mine in Wyoming. The Brook Mine had been purchased for just $2m in 2011, and was, like the many other coal mines in the state, supposed to be a reliable feedstock for coal-fired power plants. After more recent drilling results, however, it was discovered to also be sitting on top of a massive REE deposit containing neodymium, praseodymium, dysprosium, and terbium. Per Fluor Corporation, the Brook mine is expected to produce “1,242 annual short tons of oxide … which include 456 tons of gallium, germanium, scandium, terbium, dysprosium, neodymium, and praseodymium.” Exploration estimates suggest total reserves at the site are up to 1.7 million tons of critical mineral oxides. In July 2025, Ramaco’s preliminary economic assessment for the Brook Mine estimates a post-tax NPV8% of $1.2b — the REE discovery has contributed to part of a $2.5 billion growth in Ramaco’s market capitalization since the May 2023 announcement. Not a bad return for a $2m purchase price.

You may be thinking, how am I supposed to find these hidden resources when the geologists hadn’t even found them? The answer is that, in both of these cases, you could have waited until the geologists had indeed found them, and the stock market had just failed to value them. While Sibanye’s uranium is a much smaller deal relative to the size of the company, and not the reason for the impressive share price appreciation recently, the dynamic of the hidden asset is an important one. Sibanye-Stillwater has massive, multi-decade reserves of many different critical minerals that the market has failed to ascribe value to — these become, in effect, a hidden asset. In Ramaco’s case, its market capitalization had been below $500m at various points since the REE resource was discovered, providing ample time for the enterprising investor to do their research.

These hidden asset stories encouraged me to take a deeper look at what I had just discarded as a buzzword. Tronox (disclosure: long) is a company that I wrote up on this substack back in August. While I was particularly interested in the TiO2 side of the business in that article, specifically the situation unfolding with respect to the industry’s capital cycle, I did find the unique, vertically-integrated nature of Tronox’s business quite intriguing. Tronox, at current utilization levels, supplies almost all of its feedstock from its owned mines in South Africa and Australia. These mines, with mining and exploration rights spanning over a million acres, supply titanium-rich heavy mineral sand (HMS) usually containing zircon, and TiO2 feedstocks such as ilmenite, natural rutile, or leucoxene. Monazite, a REE-bearing rock, is also found in abundant quantities at these mineral sands, but has historically been discarded as a waste product due to its low commercial value and the presence of tough-to-process radioactive thorium. The increase in global demand for rare earths has changed that. Per Tronox’s 2024 annual report:

Tronox does not yet break down the estimated quantity of monazite in their owned mines, but their annual report does break down the percentage of sands that are heavy minerals. In 2024, 4.0% of Tronox’s 2,120 million tonnes of sand reserves were estimated to be heavy mineral sands, equating to 84.8 million tons of HMS across their operations. According to the World Nuclear Association, Western Australian mineral sands contain 1-3% monazite, which, using the midpoint, would equate to about 1.7 million tonnes of monazite (this assumes South African sands are also 2% monazite). Monazite ore itself is comprised of somewhere between 50%-70% rare earth elements. This means around one million tonnes of rare earth elements could be in Tronox’s possession.

I am not going to make any financial models because, until proper reserve and financial estimates are provided by Tronox, this all remains relatively speculative — quite the stretch from my usual modus operandi. Tronox has thus far been pretty cautious in its approach to the REE business; CEO John Romano himself called rare earths a “big buzzword” on the Q2 2025 call while also commenting that the company is continuing its work in the space. I do not mind the cautious approach taken by management here. In 2023, Tronox told the government of Western Australia it planned to stockpile monazite for the next three to five years, before potentially building a processing plant at its Chandala metallurgical complex just north of Perth. The facility could be fed by Tronox’s Australian mineral sands and from their own imported South African monazite. Iluka Resources (disclosure: no position) has properties nearby that are similar to Tronox’s Australian mineral sands and could therefore be a good proxy of what Tronox could develop here. Iluka has benefited from Export Finance Australia loans to help construct a REE refinery in Western Australia; similar options, like tax credits, may be available to Tronox. Tronox also just announced a strategic partnership to advance Lion Rock Minerals’ (disclosure: no position) Minta Project in Cameroon, which could act as another source of feedstock for both its TiO2 business and any rare earth processing plant. Other developments include the 2023 appointment of Eric Bender to a VP role focused on leading Tronox’s rare earths business, along with joining the Global Rare Earth Industry Association. Tronox shares are currently held inside the VanEck Rare Earth and Strategic Metals ETF (REMX). Tronox’s Australian and South African mineral reserves could provide a U.S.-allied alternative to current Chinese domination of the REE market. Western reindustrialization will require more of all minerals, from rare earths to oil and gas and everything in between.

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That is all for this article. Thank you for reading, and thank you to all of my paid and unpaid subscribers. Your support means a lot. As always, I am happy to discuss any questions you may have.

Additional reading:

US miner plotting Australian rare earths plant

The Not-So-Rare Earth Elements: A Question of Supply and Demand

The collapse of American rare earth mining - and lessons learned

Mineral Sands

“To buy when others are despondently selling and to sell when others are euphorically buying takes the greatest courage, but provides the greatest profit.”

Sir John Templeton

Tronox Holdings plc is a vertically integrated mining and inorganic chemical company focused on the production of titanium dioxide (TiO₂), zircon, and other materials, including rare earths. Titanium dioxide is an inorganic chemical used primarily as a white pigment in paints, plastics, and paper. Zircon is used in ceramics, refractories, and foundries because of its high melting point and resistance to chemical corrosion. Tronox has operations globally in the form of TiO₂ production facilities and feedstock mining operations, which support their unique, vertically integrated business. Titanium dioxide can be manufactured using either a sulfate or a chloride process. Tronox’s production is 87% chloride process and 13% sulfate. There are benefits to both, but generally, chloride is a purer product with superior whiteness, while sulfate is less pure but still has many applications.

This article will highlight the opportunity present in Tronox Holdings and will focus primarily on the TiO₂ side of the business, as that represents nearly 80% of Tronox’s revenue. I believe that Tronox trades at a fraction of its replacement cost and a valuation at ~4.5x mid-cycle EV/EBITDA, ~1.5x mid-cycle P/FCF, which does not take into account its earnings power, asset value, or notable near-term catalysts. Recent insider buying activity appears to support its attractiveness, and with no debt maturities until 2029, Tronox may deserve a closer look.

Disclosure: The author owns shares of Tronox Holdings. None of this article is financial advice. Please read the disclaimer here.

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Disclosure: I own Transocean stock. None of the following is investment advice. Always do your own due diligence. Read my full disclaimer here.

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“Offshore platforms are extremely expensive and, again for obvious reasons, no one is going to be replacing them. At some point, with their version of localized monopoly characteristics, they will have both increase demand and pricing power, and outperform, too.”

- Horizon Kinetics, 4th Quarter Commentary, January 2024.

The above excerpt is a compelling and succinct description of the thesis I hope to outline in this article. Transocean, Ltd. is an offshore oil and gas drilling company operating a fleet of 26 ultra-deepwater (UDW) floaters and eight harsh environment (HE) floaters. The UDW fleet consists of the only two 8th-generation drillships in the world, the newbuilds Deepwater Titan and Deepwater Atlas, along with a high-spec fleet of 6th/7th-gen floaters employed primarily in the deep waters of the U.S. Gulf and Brazil. Transocean’s harsh-environment floaters operate in oligopoly-esque markets such as the Norwegian North Sea, where demand for their services continues to accelerate against a shortage of competitive rigs capable of operating in the region.

The offshore drilling industry has been completely transformed over the past decade through an unprecedented combination of rig attrition, industry consolidation, and capital restructuring. These factors, combined with the barriers to entry provided by the sheer price tag of an offshore drillship, have set up the industry to earn sustainably high returns on capital for the foreseeable future. In this write-up, I will elaborate on these key points and discuss how Transocean, trading at just a fraction of its intrinsic value, is in an optimal position to take advantage of this revitalized offshore market.

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The information contained on this website has been prepared based on publicly available information and proprietary research. The author does not guarantee the accuracy or completeness of the information provided in this document. All statements and expressions herein are the sole opinion of the author and are subject to change without notice.

Any projections, market outlooks or estimates herein are forward looking statements and are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. Except where otherwise indicated, the information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the author undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional materials.

The author may currently have long or short positions in the securities of certain of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). to the extent the author does have such positions, there is no guarantee the author will maintain such positions.

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