At least one of those three got a reaction out of you. That was the point: to make you catch yourself having an opinion. Got it? Good, because we don’t care. Mine included. Opinions are a last resort for when you have no data.

And with IPOs, we have plenty. So check your emotions at the door, shut down the limbic system, and fire up the cortex.

Let’s hear what the data has to say.

On Paper

Normally, this is where I'd find a clever way to say that before you analyze something, you should define it properly. This time, I'll do it by breaking the fourth wall. It’s done. Pardon my impertinence.

Stripped to the facts, an IPO is:

• The first sale of a company's shares on a public market. The sellers are the company, its existing shareholders, or most often, both.

• A prospectus, written by the company, its lawyers, and its bankers, with a stated purpose: to give investors the information they need to make an informed decision.

• One or more investment banks that run the process for a fee: 7% of the deal in most cases.1

• Shares sold at the offer price, allocated mostly to institutions. Retail investors, by contrast, buys on the open market, at the market price, starting on the first day of trading. The pop is the gap between the offer price and the first closing price.

Humans, stakes, incentives, and imperfect information. Time to put on our game theorist hats.

Three things jump out:

• A timing asymmetry: it's literally the insiders who decide when to go public.

• An information asymmetry: the prospectus that’s supposed to tell investors everything they need to know is written by people whose incentive is to sell at the highest possible price.

• A power asymmetry: insiders have been shareholders since day one. VCs have been shareholders for 8 to 10 years or so. Most employees have been shareholders for several years. The institutions get to buy at the offer price, just before listing. Retail almost always buys after everyone else.

"Show me the incentive and I will show you the outcome," as dear old Charlie would say. But I find him too realist cynical for this post. I don't need to take selfishness as an axiom. I have data. Plenty of it.

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The Raw Reality

When?

First things first: timing. Here's the number of IPOs plotted against market valuation (market-to-book ratio).

A neutral eye sees three things:

• IPOs cluster mainly at valuation peaks.

• The sharper the recent rally, the more of them flood in.

• When the market falls, locally or globally, they drop off sharply, or vanish outright.

All three boil down to one number: on average, major IPO waves come after a market run-up of about +31% annualized over the two preceding quarters.2

The timing asymmetry clearly favors insiders and VCs.

Whether it's deliberate or not isn't our concern. Their gains don't necessarily mean a loss for retail. An equilibrium where everyone wins is still theoretically possible: insiders, institutions, VCs, and IPO buyers.

Let's test that against reality.

Who Gets What?

Unfortunately, I had trouble finding data that breaks down each player's performance in detail. But there's enough to sketch most of the picture.

Insiders and VCs are usually locked up for six months. When the lockup expires, average trading volume rises 40%, with a -1.5% abnormal return over three days.3 Both the volume and the negative abnormal return are larger when VCs are involved.4

But jumping from that to "VC = predator" is a bit hasty.

First, VC-backed IPOs perform better than smaller, non-VC-backed ones.5 Second, their alpha is highest while VCs stays invested (1.2pp/month) and drops once they exits (0.65pp/month).6 Their contribution to the "community" is real, as long as they're still around.

On insider performance, I found nothing worth noting. As for VCs, their returns tend to track the market, just far more volatile and amplified (beta of 1.9).7

Fortunately, the data is richer for institutions.

Institutions get 3.3x more shares than retail. So the lion's share. No surprise, they're the bigger fish. But the split is asymmetric: institutions receive more shares in underpriced IPOs than in overpriced ones (75% vs 68%), that is, when the pop is fat rather than thin.8

That's the short term. The longer term matters too (a few months out). IPOs with high institutional allocation post a +4pp/month alpha; the low-allocation ones, nothing.9 Yes, per month. That’s not a typo. To say institutions are better served, serve themselves more, or both, on the best deals, is still a neutral read.

But money doesn't wait. Which is why institutions are far less patient than retail: within two days of the IPO, they've flipped 41.5% of their allocation, versus 18.6% for retail.10

The numbers are clear: institutions, too, cash in on their power asymmetry. But it still says nothing about how retail performs.

The Final Problem, Our Final Problem

You’re retail, with retail problems and retail questions. But above all, you’re neutral. So you figure none of the data above gives you even the faintest lead. Bravo, lovely mindset. Especially on a subject this divisive, in a period that’s even more so.

Let’s hear the data instead.

Not Short Term

Here's the 3-year performance of more than 9,000 IPOs.

A few key numbers11:

• 60% of IPOs are in the red at three years.

• 16.1% are multibaggers after three years.

• On average, IPOs return 19.1% over three years, versus 39.6% for the market.

• That average is heavily flattered by the 0.5% of firms with exceptional returns: the median falls to -25.7%.

• Performance comes down to two variables: size (large = >$100M in sales) and profitability. Here's their average underperformance versus the market over three years:

  • Small and unprofitable: -40.9%

  • Small but profitable: -25.9%

  • Large but unprofitable: -2.7%

  • Large and profitable: -3.4%

To put it coldly: the 3-year IPO is a losing game on average, worse at the median, and worse still for small companies.

I spent almost as much time writing this piece as I did making these visuals and the ones that follow. Sharing helps spread the knowledge (and makes the time spent on these damn charts worth it too, I'm not gonna lie).

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Three years is a long time. Some of you may want a shorter horizon.

Short Term

Institutions are better served on the best deals. The consequence: the retail buyers who do get an allocation get it more often, and in larger size, on the bad ones. The phenomenon is so common it has a name: the winner's curse12 (I didn't pick the name, promise. No judgment, remember).

Fine: retail investors who get an allocation are disadvantaged from the start. But they’re only a small minority of retail : the vast majority buy on the open market.

For a very short-term view, here are the numbers on the biggest IPOs over the past 15 years:

Roughly, it's a coin flip: a little more than half of IPOs are in the green early on, a little less after a year. The turning point comes around six months: the share of companies still positive drops from 57% to 43%, and the median return falls with it. That lines up with the end of the insider and VC lockup, and the hype cooling off.13

The last piece of the puzzle only comes into view when you look at the biggest IPOs of the last 15 years one by one.

In its first year, every one of these IPOs ran a max drawdown of dozens of percent. Every one.

Enough numbers. We have what we need to tell the story.

The Complete Statistical Story

Everyone but retail benefits from their respective asymmetries. Plenty of studies show how the IPO process and the incentives feed each other, making the game even more "biased," but each adds a layer of interpretation, and that's what kept them out of this post.14 Just in case: everything pointed to a structural, sustained disadvantage for retail.

That doesn't mean retail investors can't win. Short term, it's theoretically possible. You'd have to adjust raw data for fees, spreads, taxes, and above all for self-sabotaging psychology (still an objective fact, no?). But on paper, it's possible.

For long-term investing, the numbers leave no doubt: buying an IPO almost certainly means sitting through a drawdown in year one.

Yes, wonderful companies can go public. Yes, nearly every one of the world’s finest public companies went through an IPO. But there’s almost always a far better buying opportunity than the IPO itself. Usually within the first year.

If you're not chasing statistically rare short-term returns (days to a few weeks), there's no statistical reason to buy at IPO.

I don't think I can go further without interpretation.

“Those who do not know history are condemned to repeat it.” - George Santayana

Great opportunities exist outside IPOs too. Here's a great one.

Take care,
Flo

Refer friends and earn free months of paid access.
Zero downside (rare in this market).

Refer a friend

So I'm putting 15,000 words behind that conviction. All of it: arguments, numbers and assumptions. Nothing held back.

May you have as much fun reading it as I had writing it.

Take a highly regulated, highly fragmented industry, so interdependent that one large player relies on dozens of others, each of which relies on dozens more.

Add critical, certified products, installed for years across hundreds of platforms, with a customer base that would be an understatement to call “conservative.”

Let that run for a few decades and you end up with large industrial groups carrying hundreds of product lines. Somewhere in that pile of parts, some become too small to remain part of their “internal priorities.” But they cannot disappear. Hundreds of machines depend on them.

When capitalism does its job well, the smaller company steps in to arbitrage the constraint. That’s the better owner principle.

It buys mature product lines the larger players want to shed, takes over the rights and the customers, then runs them through an optimized cost structure.

Call it industrial recycling, with better margins. Many companies have created a lot of value this way. TransDigm did it in proprietary aerospace components. HEICO did it in replacement parts and approved repair.

Today’s company has turned this mechanism into a business model, one its legacy business sharpens: each side feeds the other.

Revenue up nearly 80% in a year. Margins expanded. Management still guides the company to nearly triple revenue again by 2029, while keeping the kind of margins most industrial businesses would politely call unreasonable.

And yet the stock is down by half because Mr. Market had one of his recurring mood disorders. A quarter came in with little growth, a pause management had been flagging for quarters. But the market decided that a timing issue was a thesis problem. Helpful, as always.

He did the same thing a year ago. It worked out nicely for whoever was buying.

Here's Innovative Aerosystems (ISSC).

Table of Contents

1. Short-form Thesis

2. The Business Model

• Where It Sits in the Industry

• The Proprietary Cockpit Stack

  • ThrustSense Autothrottle

  • The Future

• The Acquisition Engine: Industrial Recycling

  • The Seller

  • The Product

  • The Buyer

  • The Precedents

• The Synergies Between the Two Models

  • Cross-Selling

  • Portfolio Completion

  • More Cash Flow to Finance R&D

3. Acquisitions

• Wave 1, First Steps

• Wave 2, Great Leap Forward

• Wave 3, Preparing the Future

• The Patterns

4. The Operational Trajectory

• The Origin of Growth

• Margins

• The May 14, 2026 Sell-Off and Mr. Market’s Mistake

• The Math Behind IA Next 2029

5. The Capital Structure

6. Governance and Alignment

• The Engineer Who Allocates

• Alignment

• The Board and the Shareholder Base

• The Real “Governance” Risk

7. Valuation

• Qualitative Valuation

  • The Discount

  • The Risks

  • Discount vs Risks

• The Assumptions

  • Ground Rules

  • The Scenarios

  • The Inputs

• Verdict

8. Conclusion

1. Short-form Thesis

The setup is fairly simple.

• After the May 14 sell-off, the market values ISSC at around $300M.

• Management is targeting $250M in annual revenue by 2029, at a 25-30% Adj EBITDA margin, which works out to $63-$75M of Adj EBITDA versus $25M in FY2025.

• At the current 12.3x EV/EBITDA multiple, that gives a 2029 EV between $775M and $920M.

• Net of debt, the equity is then worth around 2.5x. No re-rating needed, despite trading 50%+ below peers. No significant change in the business. Just the same old business.

• Proportionally, the downside is sharply limited. Even if the company misses guidance. Even if the company is "frozen."

Still, whether the guidance is credible is the question that matters. The past says yes.

The acquisition strategy already has a three-year track record:

• In 2025, ISSC almost doubled the footprint of its Exton facility, from 45k to 85k sqft, and more than tripled production capacity, for a total cost of (only) $6M.

• Since June 2023, six asset purchase agreements have been signed, three of them in the February-March 2026 window alone, totaling $87.7M in cash deployed. Most of its growth comes from acquiring product lines that the giants no longer want.

• Revenue also almost doubled between FY2024 and FY2025 (tripled since FY2022), and net margin moved from 14.8% to 18.7% over the same period (20.6% to 24% on operating margin).

The pipeline is set to widen further. Honeywell will spin off its Aerospace segment as HONA in 2026. That’s a $17.4B revenue business about to become a standalone pure-play, with the portfolio discipline that comes with it, and therefore more legacy lines to divest to credible, established buyers. ISSC has already proven that credential to Honeywell, more than once. Either way, Honeywell is only one seller out of five or six. Collins, GE Aerospace, Garmin, Moog, and Elbit each have their own legacy lines to rationalize.

The remaining job is “simply” to keep going. Acquire and integrate another $130-$140M of revenue by 2029.

If everything looks so rosy, why the Q2 FY2026 sell-off?

First, the price was already stretched after a 3.8x in four months. Fair to say the market had gotten well ahead of itself, and the smallest hiccup was going to cool it down. Despite my own conviction, I had trimmed 25% of my position at that point.

Second, management had been guiding to a weaker Q2 FY2026 for several quarters, flagging an F-16 trough between two production cycles tied to the line transition from Honeywell to ISSC. Q2 FY2026 came in at $22.4M of revenue, +2.0% YoY, and the market treated it more or less like a broken thesis.

Nothing new. The stock fell from $20 to $8 between August and November 2025 for the same reasons: a revenue air pocket tied to a line transition. The stock then ran almost 4x over the next four months.

The May sell-off changes nothing about the thesis. It's just Mr. Market being Mr. Market. At least it handed me a discount I was glad to take.

All that’s left is to show this reading holds up to the facts and the math.

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2. The Business Model

Even knowing the company very well, I have to say that the description of its business model in the 10-K is fairly vague, to put it politely. The investor presentation is a much better starting point:

At the center: the physical structure of the cockpit. Around it: all the electronic systems bolted on top to make the cockpit work. ISSC designs these systems, manufactures them, installs them, and supports them across their full lifecycle. That is complete vertical integration, all under one roof in Exton, Pennsylvania.

In a field where every component requires FAA (Federal Aviation Administration) certification and where the slightest modification triggers a long and often painful recertification cycle, that vertical integration is clearly a competitive advantage.

It obviously didn’t come from nowhere.

This moat was built over 37 years of work and relationships, which today allows ISSC to equip aircraft under OEM contracts with the sector’s biggest players. The legacy business has been generating cash for decades (with ups and downs) and accounted for all of the P&L through FY2022. The sector itself acts as a barrier to entry. An operator does not have the luxury of choosing its supplier. It buys what is approved for its aircraft. That’s the rule. And often only one company has gone through the long certification process for its product on that specific aircraft. When Lockheed Martin builds or upgrades an F-16, it has to buy the display generator and flight control computer produced by ISSC. No one else has the right to manufacture them (under Honeywell licensing since September 2024), and no one else wants to do it at that scale.

The second component is what kept that business model alive for 37 years: innovation. The ThrustSense® Autothrottle, the first FAA-certified turboprop autothrottle (which literally saves lives), has been generating cash flow since at least 2019 and will continue to do so for years, if not decades. The current pipeline is a loaded one, with UMS2 and Liberty Flight Deck at the front, and will not contribute meaningfully to revenue before 2027-2028, subject to a regulatory schedule that is notoriously hard to pin down. Behind these innovations, ISSC has a clear vision: autonomous flight. But one thing at a time.

ISSC keeps the cockpits of yesterday in service and is figuring out what the cockpits of tomorrow look like.

That leaves the third engine: acquisitions. That engine kills three birds with one stone:

• It adds certified installed base to the mature stack.

• It gives ISSC the technical building blocks it was missing in the forward-looking pipeline (things that would have taken years to develop internally).

• And it comes with a customer base ready to cross-sell into.

I'll break them down one by one. But first, let's put ISSC back in context.

2.1 Where It Sits in the Industry

I would have liked to write a full section on the industry and where ISSC fits into it. I’m going to skip it. Three reasons:

• We have little visibility into ISSC’s specifics: what it sells, at what price, and to whom. “Professional secrecy.”

• The industry is genuinely complex, with a lot of players and a lot of moving parts.

• And it’s honestly not relevant to the thesis.

For your viewing pleasure, here’s a snapshot of the sector anyway. Don’t bother thanking me.

But we still need a general overview.

ISSC sells products that run from a replacement seal worth a few dozen dollars to the ThrustSense autothrottle, somewhere between $70k and $100k per aircraft by my estimate. And services too: from overhauling a cockpit component for a few thousand dollars to an Engineering Development Contract (EDC) that can run into the millions.

The product/service split is the only breakdown management fully discloses. That answers the what. Not the who, and not the how.

Start with the how. There’s OEM (the new stuff, gear fitted to an aircraft still in production) and there’s the aftermarket, which is everything else. Roughly, aftermarket = MRO + retrofit.

• Maintenance, Repair & Overhaul (MRO) is everything that keeps already-installed equipment running. It’s recurring revenue, and it isn’t optional: an aircraft has to go through inspections at intervals the regulator sets, or it stays on the ground. No recession in this corner of the market. Just the same old business.

• Retrofit means fitting new or upgraded equipment onto an aircraft already in service. Higher margin, and strongly countercyclical: when there’s no budget for a new aircraft, you modernize the old one.

Here’s the part management doesn’t push hard enough, in my opinion. On most of the products ISSC builds (or whose production lines and patents it buys), it is the only provider cleared to service them and supply parts.1 No competitor is allowed to touch a box that ISSC alone is certified to maintain.

If the aftermarket is so attractive, why bother with OEM at all? Why supply low-margin gear to Pilatus, Boeing, Textron? Because today’s OEM is tomorrow’s aftermarket. Every unit fitted on the production line creates an installed base that throws off MRO and parts revenue for decades.

Management gives no number, but my guess is revenue runs around 80% aftermarket (20% OEM), a good chunk of it MRO. My main argument is the way ISSC’s customer base has shifted, and its tilt toward the military, which carries relatively little OEM.

The military, precisely, that’s one answer to the who. But who are the others? The question matters, because the who drives a lot: type of contract, margin profile, and the rest.

No disclosure here either, just my estimates. They can swing hard from one quarter to the next, even one year to the next. The constant is the weight of the military, which four years ago didn’t account for more than 10%.

Here's what matters about each.

• Military: combat and transport/refueling aircraft flown by armed forces, not necessarily American ones. Usually long-dated contracts with low gross margins, offset by near-zero SG&A. No advertising to pay for, the contract funds the engineering, the customer comes back.

• Commercial air transport: think airlines and cargo. Big customers with big fleets, on frequent and heavily regulated maintenance cycles.

• Business aviation: aircraft or small fleets owned by individuals and companies. Everything is smaller (the aircraft, the customer, etc.), and the market is far more fragmented.

ISSC supplies OEM parts to all three markets. Which means it supplies their MRO and retrofit too.

The big picture is clear enough. Time to get into the details.

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2.2 The Proprietary Cockpit Stack

Historically, ISSC’s proprietary business is made up of 6 certified product categories, all manufactured in the one and only factory in Exton, Pennsylvania:

• Sensors, to collect information (altitude, speed, etc.);

• Displays, to show it;

• Communication, to communicate;

• Navigation, to navigate;

• Actuators, to activate the physical flight controls;

• Control Systems, to run it all.

The details matter little. The central idea is that its products cover most of the building blocks of a modern cockpit in the segments where ISSC currently operates, with one exception. An in-house autopilot is missing. Or rather, was. We will come back to that.

Among them, one product is nonetheless worth detailing, because it demonstrates what ISSC intends to replicate in the coming years.

2.2.1 ThrustSense Autothrottle

In 2016, ISSC identified a need the market had not met: no autothrottle for turboprop aircraft.

Very roughly:

• Turboprop = propeller + turbine, slow, short-haul, economical.

• Jet engine = pure jet, fast, long-haul, more expensive to operate.

The autothrottle is what allows engine power to be managed automatically throughout the flight, without the pilot having to touch the throttles manually (takeoff and landing included). That lifts an enormous cognitive load off pilots, and takes away one more chance of a serious, even tragic, mistake.

Every modern commercial jet has one, but not turboprops. Such is capitalism: no manufacturer had ever deemed the market attractive enough to invest in.

ISSC sees the need and, confident in its engineers and its company culture, invests. Three years later, in April 2019, the FAA certified its ThrustSense Autothrottle for retrofit on the King Air.2

It thus became the first autothrottle in the world certified for a PT6 engine (Pratt & Whitney), meaning the engine that powers the vast majority of civil turboprops. In practice, being certified for PT6 means covering most of the global turboprop market. That’s all. To this day, ThrustSense is the only FAA-certified autothrottle for PT6.

After that, foreign certifications follow quickly, and Textron, one of the major players in the sector, signs a multi-year OEM contract to integrate ThrustSense into the newly manufactured King Air 260 and 360. ThrustSense is therefore integrated into older turboprops and new ones alike.

The military spots the opportunity and selects ThrustSense in late 2024 for its militarized version of a civil turboprop.

In reality, the military had no choice. There is currently no other autothrottle for PT6 turboprops. Developing one would take years and a string of certifications.

Here, it is clearly worth acknowledging the prowess of the current CEO, Shahram Askarpour (Vice-President of Engineering until 2012, then President until 2022). He is the one who spotted the need, who had the technical vision and the engineering skills to create this product.

And his transition as CEO has not stopped the company from preparing for the future.

2.2.2 The Future

Two significant products are in the pipeline.

Utility Management System 2 (UMS2), the next generation of the UMS delivered on Pilatus aircraft. Think of the UMS as the brain of the cockpit, monitoring and controlling most of its other components. The main addition in this new version is the integration of a neural network that brings AI to increase the level of cockpit automation. The first UMS2 deliveries to Pilatus for their PC-24 model are expected in the coming weeks. Seen that way, it looks like nothing more than a product upgrade that will at best generate a bit more revenue. But the UMS2 is platform-agnostic. It can also serve business aviation and the military, subject to regulatory approvals that will take time. AI, and a new pool of potential customers. And that is not the biggest innovation.

Liberty Flight Deck (LFD). The “Deck” here is the most important part. Before the LFD, ISSC sold cockpit components here and there, one autothrottle for X, one UMS for Y, and so on. The LFD is literally a complete, turnkey cockpit, with all systems talking to each other natively. And here, ISSC takes a different route. Other competitors already sell complete flight decks (Garmin, Honeywell, Collins), but most remain largely proprietary. You buy the whole ecosystem, or nothing. LFD is fully open-architecture. You can connect competitors’ products to it, you can upgrade it modularly. That is a massive commercial argument, especially when clients (airlines and operators) complain at every opportunity about lock-in by the major integrators.

“The Company believes that its new Liberty Flight Deck (LFD) will be a key driver of its next phase of growth.” 10-K FY2025

First commercialization targeted for 2027 in the business jet aftermarket, and 2030-31 for OEM platforms.

The last comparable phase of innovation dates precisely from the early 2000s. So, why a turnaround 20 years later?

This is going to sound a bit harsh, but I think the main cause is the death of founding CEO Geoffrey Hedrick in early 2022. He had a vision when he created his company, a vision suited to his time, and it worked. He was also an engineering genius, with over 100 patents to his name. But the market evolved, and he failed to adapt. The company struggled from 2006 until his death. His capital allocation was equally questionable, far too conservative for this sector. On several occasions, reading through old analyst commentary, I came across recommendations urging strategic shifts that he dismissed out of conviction.

The arrival of the former VP Engineering, an engineering genius (yes, him too), Shahram Askarpour, as CEO was the triggering event. He sought to reorient the product mix and target military clients, put a strong focus on innovation, and used his network and reputation to make acquisitions. And it shows perfectly in the non-financial data. Engineering headcount has grown by more than 50% in each of the last two fiscal years. The number of patents has more than tripled in 3 years (international & trademarks included). Management and the core engineering team average more than ten years of tenure at the company.

The 30x from the Covid trough to the 2026 high is not a consequence of a 37-year-old business model. It is the reward, earned year after year, of an exceptional management team and its employees who transformed this company from a barely surviving business into a recognized player.

Shahram Askarpour has transformed the company in a few years, and I am convinced he is the primary architect of its success.

That is why the avionics giants chose them when it came to selling their orphan product lines. They needed a credible buyer, and ISSC had become one.

2.3 The Acquisition Engine: Industrial Recycling

Acquiring orphan product lines from sellers for whom the sale is immaterial, and who want quality buyers to avoid alienating their customers.

2.3.1 The Seller

Of 6 acquisitions, Honeywell Aerospace is the source of 5 of them. Honeywell Aerospace is a $17.4B revenue business in 2025, currently being spun off under the ticker HONA, expected by Q3-2026.

For HONA, a product line generating $5M or $10M per year, even a profitable one, is a rounding error. But a rounding error that ties up resources (engineers, certifications, factory space, etc.). For an efficient capital allocator, the equation is relatively simple: these product lines are generally worth more sold than kept.

But that was the old reality for Honeywell. Honeywell Aerospace is being spun off in the coming months. To understand the impact this will have on ISSC, it is better to treat this spin-off as a source of answers rather than questions:

“Honeywell has been over the past couple of years divesting a number of their avionics product lines. The exact nature of their purpose they will not share with us, other than these are the kind of the previous generation of the product lines and now they’re moving on with their latest and greatest.” Conf Call June 2023, CEO.

3 years later, we have the answer. All those divestitures were preparation for this spin-off. And the Form 10 adds even more clarity: HONA intends to focus on its recent innovations. I use the term “innovation” again, but we are objectively talking about a different level of technology than ISSC’s (to be fair, ISSC is a dwarf compared to HONA): a touchscreen cockpit with native cloud, software to navigate in GPS-degraded environments, and even electric propulsion systems. The future, basically.

On the other hand, an autopilot designed 20 years ago installed on tens of thousands of civil aircraft (KFC 325) is not the future, nor Honeywell’s priority. Same goes for military display generators on aging F-16s (still in production 50 years later), or electrical generators on even older F-15s. That is precisely why it has been selling them to ISSC since June 2023.

Once listed, the incentives will be even stronger. HONA will be scrutinized quarter by quarter on its margins and strategic focus, and anything that is not the “future” stands a good chance of becoming sellable.

Obviously the pattern is not specific to Honeywell. It is in fact a classic cycle among the aviation giants: they acquired a line 15 years ago, integrated it efficiently, then moved on to the next generation, which eventually made it irrelevant. It may be awkward to have in the portfolio, but the line exists physically, and the aircraft that carry it and need maintenance or even part replacements also exist, and often for decades. They certainly want to get rid of it, but they do not want to sell it to a company that will manage the line poorly and anger their clients (those clients very often remain clients on other products, it is a very closed ecosystem), and they choose, in their view, the best buyer to protect their reputation.

When Moog sells its S-TEC line (autopilot product line, well played if you have been following) in February 2026, it does not explain why in detail, but this is precisely the mechanism I just described.

2.3.2 The Product

First important point: ISSC only acquires product lines certified by the FAA (USA) or EASA (European Union), or both. Without that, the aircraft has no right to fly.

Second important point: these certifications do not transfer automatically. When Honeywell sells a product line to ISSC, ISSC must obtain its own TSO authorizations (Technical Standard Orders, the FAA’s minimum performance authorizations required to manufacture and sell specific avionics equipment) for each product (still simpler than a full certification from scratch since the design data already exists). Askarpour estimates this at around one year per transaction to migrate all TSOs. Obviously, no newcomer can enter a product market without having paid this entry cost (both time and money), for a market that often represents only a few thousand units per year at the end of the chain.

And these aircraft fly for a long time. A very long time. ISSC’s 10-K states it clearly: its products equip aircraft “in service for up to fifty years.” A King Air rolling off Textron’s production lines in 2026 will need ISSC-certified parts in the 2050s. And for the lines Honeywell manufactures today and will sell off in 15 or 20 years, there will be several more decades of demand after their sale. Concretely, ISSC’s future acquisition pipeline is already on Honeywell’s assembly lines.

To top it all off, the installed base is aging. The average age of the global commercial fleet reached 14.8 years at the end of 2024 (a record), and the curve has been rising for 20 years. Blame the airlines that do not have the balance sheets to renew at the historical rate (or rather a supply chain that extracts maximum value upstream and a hyper-competitive sector). So you keep the aircraft, you replace the parts, and that is exactly where ISSC fits.

2.3.3 The Buyer

On the first deal in June 2023, Honeywell received 7 bidders. Of those 7, ISSC was the one chosen, as it was for the four following acquisitions. ISSC's CEO puts the choice down to one thing: “We had unique capability at IS&S that made us a very attractive buyer.” Fine, but which ones?

First, ISSC manufactures 100% of its products in its Exton factory in Pennsylvania. A major difference, given that nearly the entire sector outsources a significant portion of its subassemblies. Less subcontracting = better margin on products, which is good news for ISSC, and for Honeywell. Obviously, ISSC gets new product lines that bring in a material amount of cash flow, and Honeywell gets rid of lines that are too old (whose customers sometimes complain that they had been neglected by Honeywell, with delays, lower quality, etc.) and finds a player for whom those lines matter and who has every incentive to manage them effectively. It is even one of the main levers that drove ISSC’s Adj EBITDA from $11M in FY2023 to $25M in FY2025.

“Typically Honeywell has outsourced a lot of these manufacturing of their subassembly. And there are opportunities there for us to take a look at some of the outsourcing they do because we have full in-house capability.” Conf Call, June 2023, CEO.

Second, ISSC has room. A lot of room. ISSC prepared the reorientation of its business model toward M&A and optimized the setup of its current factory, doubling the floor space and tripling production capacity in anticipation of this M&A. Honeywell therefore finds itself facing a player that has already prepared the ground and is ready to integrate these lines quickly and efficiently.

Third, they showed they were capable. Once the first transition was completed, then the second, ISSC built a reputation as an efficient acquirer and integrator. Once again, the aerospace world is a fairly closed one, everything gets around quickly, and ISSC’s reputation also reaches the 5-6 other giants ready to get rid of their lines. Moog’s divestiture of its autopilots to ISSC in 2026 is in part a reward for ISSC’s previous successes.

ISSC deserves credit for its execution, but it did not invent the business model.

2.3.4 The Precedents

To understand ISSC’s future potential, you have to look at those who came before.

TransDigm ($80B) and HEICO ($40B) spent decades doing something similar to what ISSC does.3

TransDigm acquires companies that own proprietary and sole-sourced aircraft components while HEICO is best known for creating alternative parts that compete with the OEM. Both exploit a similar asymmetry to ISSC: products that don’t die, margins majors tend to leave on the table, customers who pay for reliability, all in a niche, heavily regulated sector with recurring revenue.

Can ISSC become the “next” TransDigm or HEICO? The current math allows it. My read: very unlikely. Three questions crystallize the uncertainty:

• Does the company have the human capabilities to execute this transformation?

• Will ISSC be able to make enough acquisitions for that?

• Will the acquisitions be sufficient?

The first is too uncertain to attempt an answer. The only thing to say is that so far, management has executed the transformation very well over the last 3 years. But there is a real key personnel risk with CEO Shahram Askarpour, who is 68 years old. HEICO has had and will have multiple generations of Mendelson. More on that later.

For the second question, one argument is worth (re)mentioning. The global fleet is aging, increasing the need for MRO and retrofit of older aircraft, exactly the kind of lines ISSC targets through these acquisitions. So demand for these products has a future. On the supply side, today’s new aircraft will become tomorrow’s old ones, and therefore a new pool of lines for ISSC. Relevant, yes. Sufficient to cross tens of billions in market cap, hard to tell. No doubt it will be more complex than acquiring private companies outright, like TransDigm does.

On the other hand, ISSC has something HEICO and TransDigm don’t have at the same level: a clean-sheet R&D engine on top of its M&A pipeline. Its own proprietary R&D has historically been a source of revenue and cash flow, and the company continues to fill its innovation pipeline for the years ahead with UMS2 and the Liberty Flight Deck.

The third question is the most important but also the most complex. Clearly, ISSC doesn't have TransDigm's pricing power and probably never will. The TransDigm level is, in my view, out of reach for ISSC. On HEICO, I'm less categorical. Obviously, the comparison isn't perfect, particularly on the Parts Manufacturer Approval segment, where ISSC has no presence. But ISSC's model has its own advantages, notably enormous cross-selling opportunities. The “yes” isn't obvious, but neither is the “no”.

All of this remains speculation over several decades, and obviously won’t constitute a bull case, but the pattern was worth mentioning.

2.4 The Synergies Between the Two Models

This is what makes the ISSC opportunity so attractive and, in my view, completely underestimated by the market.

3 major synergies stand out.

2.4.1 Cross-Selling

By acquiring these product lines, ISSC enters into commercial relationships with new clients and can also offer them its other products. In a sector this conservative, it’s a way to expand its customer base without having to spend millions on marketing and customer relations, and above all, a lot of time.

This applies to existing products:

“We benefit from deep customer relationships which have further strengthened following the Honeywell transactions. This gives us the opportunity to cross-sell our broad portfolio of existing products to customers. As an example, some of the radio products recently acquired from Honeywell were coupled nicely with our cockpit offerings in the C-130 platform.” Conf Call Q1-2026, CEO.

But also for future products. When Liberty Flight Deck is certified for the business jet aftermarket, the customer base will already exist and be well established. Same for UMS2, which is platform-agnostic. ISSC innovates where demand meets expertise. My guess is that cross-selling drives more of those R&D decisions than the filings suggest.

2.4.2 Portfolio Completion

Earlier, I told you that ISSC had every product needed to offer an integrated cockpit suite except one: a certified autopilot.

The gap is enormous. The FMS calculates the route, the FPDS displays it, the UMS controls all the subsystems... but no autopilot to fly the aircraft. Not for Part 23, and even less so for Part 25:

• Part 23 is the standard for light aviation (turboprops, light jets, etc.). These aircraft carry fewer passengers (≤19) and are less regulated.

• Part 25 covers large business jets and large commercial transports (A380, Boeing 737, etc.). Extremely regulated, but significantly larger in value than Part 23.

To create a certified Part 25 autopilot from scratch, you are looking at 5 to 7 years from design to first sale, and tens of millions of dollars out of ISSC’s pocket. Or rather, used to be.

In February and March 2026, ISSC acquired two complementary autopilot product lines for approximately $25M cash combined. Together they cover the spectrum from small General Aviation (all civil aviation except airlines) aircraft up to certain Part 25 applications. Among others, they acquired the lines for:

• The KFC 230, a next-generation digital autopilot developed by Honeywell only 4 years ago. It becomes “the workhorse for our own autopilot.”

• The KFC 325, whose autopilot is installed on tens of thousands of aircraft. Aircraft to which ISSC will now be able to sell its UMS2 and Liberty Flight Deck once certified. And above all, an enormous client base for future MRO and upgrades.

For $25M, ISSC bought future clients and everything needed to offer a full cockpit suite to those same customers. According to its CEO, with these acquisitions it have become “probably the largest autopilot supplier right now in the market covering the spectrum of aircraft”.

2.4.3 More Cash Flow to Finance R&D

You make avionics components, you watch the market and its inefficiencies, and you find ideas that could address them and that require R&D. You go to a bank to borrow a few million and explain that you want to borrow to fund R&D that may or may not turn into future cash flow, and if it does, only in a few years (regulation doesn’t rush). Best case, you get a polite “no.”

You want to buy product lines that the giants want to get rid of, often at low prices. You have the expertise and infrastructure to do it. You go to a bank, explain the situation, the quick cash flows, and it lends you $20M over 5 years. Perfect. You buy the line. You integrate it quickly, generate your quick cash flows, to the point where you pay back the debt in a few quarters. You repeat this across several deals, and each time, you allocate part of the cash flows to R&D. In the end, you’ve managed to double your R&D budget in 3 years, and the cherry on top is bigger than the cake: you have more revenue and cash flow even without the R&D needing to pay off.

You are now able to innovate significantly more and create a new generation of products.

The first scenario is obviously fictional, and ISSC did not make these acquisitions in order to fund R&D more freely, but it shows how the acquisitions enhance innovation and therefore ISSC’s historical business.

To temper expectations, this synergy is probably limited at this stage. UMS2 started being funded before the acquisitions. Liberty Flight Deck is probably the only product directly benefiting from this R&D facilitation. What is certain, however, is that ISSC now holds all the cards to focus on R&D when it finds an opportunity worth the time and money.

Now that we have a clear picture of the business model, we can look at the acquisitions.

3. Acquisitions

6 deals in 3 years for a total of $87.7M cash. 5 were done with Honeywell and 1 with Moog.

Analyzing them one by one would be the best way to miss the strategy behind these acquisitions, but a short summary of each doesn’t hurt.

These 6 acquisitions can be split into 3 waves.

3.1 Wave 1, First Steps

Some context. In June 2023, ISSC sat at $34M of revenue, $11M of EBITDA, and a market cap of around $100M. The deal itself was $35.9M. A good third of its market cap. For a microcap that had been going nowhere since 2006, this was objectively a big bet. The risk was partly cushioned by the financing: $20M in term loan and the rest from its own cash.

With that, ISSC bought lines of inertial reference units (IRU, used to calculate trajectory data without GPS) and communications/navigation radios installed on thousands of aircraft (mostly Part 25). Why these lines in particular? For 3 reasons.

First, the basic financial logic is attractive: ISSC had about 50% of its production capacity sitting unused at the time, and these new products require the same infrastructure and the same engineers as the existing ones. So integration costs are low and integration is fast. On top of that, post-integration margins on these lines are similar to ISSC’s margins at the time. The lines can generate meaningful cash, and quickly.

Second, the logic is also strategic: portfolio completion & cross-selling. At the time, ISSC had a “limited capability” in inertial and comm/nav. This acquisition allowed it to complete and optimize the portfolio quickly. And these lines serve thousands of aircraft, which gave ISSC a network of customers it could never have built organically.

One last detail makes these lines particularly attractive for ISSC. An IRU or a comm/nav radio installed on a Boeing 737 never stays in service for 25 years without intervention. They need MRO. If Honeywell wasn’t interested in these lines anymore, it was even less interested in the MRO around them. Honeywell had stopped servicing this market for these lines years ago. An operator had to look for providers certified and authorized by Honeywell for MRO on these lines, and according to customer feedback, the offering was clearly insufficient.

For ISSC and its $100M market cap at the time, this was a windfall. So ISSC bought the exclusive IP rights and is more than happy to service the MRO on these lines. Every time an aircraft needs MRO, ISSC is the only authorized supplier. A perfect example of the better owner principle in M&A.

Theory is clean. Practice too.

A word on Adjusted EBITDA, because I can sense it irritates someone. I'm going to use it throughout. Management uses it for almost everything, and it's the clearest read on the business model once you strip out the noise.

Management's definition is surprisingly honest: net income before interest, taxes, D&A, transaction-related acquisition and integration costs, and non-recurring items. And yes, SBC is left in (Honeywell, for one, strips it out…). Nothing is swept under the rug. It's just the least-bad way to compare ISSC's performance after one acquisition or after three.

In either case the adjusted figure stays reasonably close to reported EBITDA: the spread between adjusted EBITDA and reported EBITDA has ranged from 4% to 14% over the last three fiscal years.

Management was projecting (on a trailing twelve months basis): +40% revenue, +75% adjusted EBITDA, and EPS accretive (one would hope). Based on these numbers and ISSC’s pre-deal reality, you get incremental EBITDA of $8M and therefore a payback in 4.5 years. To sum up, the line was acquired at a multiple of roughly 4.5x EBITDA.

Reality delivered: revenue +54%, adjusted EBITDA +75%, and EPS +28%. Clearly an economic and strategic success.

In July 2024, ISSC put another $4.2M on the table for a complementary comm/nav line. Just a small asset acquisition (no goodwill) that follows exactly the same logic as the first.

At this point ISSC has shown three things:

• It has a strategic vision and is capable of executing it efficiently.

• Even a modest pace of future acquisitions can structurally change the P&L.

• It is ready for wave 2.

Wave is clearly an understatement. The impact looks more like a tidal wave. It radically transformed ISSC.

You can't understand the company as it is today without grasping everything its next acquisition implies.

3.2 Wave 2, Great Leap Forward

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This single sentence says a lot more than it seems.

In case you missed it, here's my full deep dive on Atlas Salt, one of my largest positions.

The thesis fits on one page, but the conviction needed to hold it requires a deep understanding of the company and its market.

Don't trust me. Check my arguments, my hypotheses and my results.

The Detail

Atlas agreed to issue 8,333,400 common shares at C$1.20, for C$10,000,080, on a bought-deal basis co-led by Ventum Financial and Raymond James. The underwriters hold an option on another 1,250,010 shares at the same price (about C$1.5M), exercisable until 48 hours before the closing, which is expected around June 11.

As in October, these shares carry no hold period: they are free-trading from closing. So there is no deferred "wall," that moment, four months later, when a hold expires and everyone can sell at once.

After a 6% cash commission, the C$20,000 corporate-finance fee and roughly C$160,000 of legal and accounting costs, net proceeds come to C$9.22M (about C$10.6M if the option is exercised in full).

In reaction, the stock pulled back within the range of the dilution (7.5%, up to 8.6% if the option is exercised), no further. On the face of it, the market reacted well.

But I don't trust the market.

The offering document gives us a good deal of important information. Let's dissect it.

What These Funds Are For

These available funds, about C$13.9M (the net proceeds plus existing working capital), are budgeted for the next 12 months. Here’s the breakdown:

Half of it looks dull. C$3.5M of G&A, C$3.19M of unallocated working capital: together, 48% of the available funds. I can already hear the skeptics: “they raised the money to keep the lights on.” Yes and no.

The C$3.19M isn’t dead money. The LIFE exemption forces the company to certify it has twelve months of liquidity, enough to cover what it needs to keep running, and that unallocated line is the buffer behind it. The rest arms a company preparing a C$589M build (staff, advisors, the groundwork on the commercial agreements, etc.).

The last two lines aren't diligence overkill. In fact, they are the most important ones.

The C$0.25M roughly pays for lender due diligence and the data room behind the construction financing: financing is advancing.

Above all, the C$0.5M. The document is specific: it covers the "advancement of strategic commercial arrangements with key project partners, including Sandvik, Hatch and Continental Conveyor."

More precisely still, it talks about:

• “Advance procurement planning, equipment studies and commercial arrangements for major project packages.”

• “Support long-lead procurement strategies and technical-commercial coordination with strategic project partners.”

In other words, Atlas is developing its commercial arrangements with each of the construction partners with which it has signed a specific MOU: Sandvik, Hatch, Continental. Only Scotwood is missing. That's normal: Scotwood is an offtake partner, relevant closer to production. More than three years out, the opposite would have been surprising.

One last line, among the C$1.2M: “Consolidation of geotechnical and hydrogeological interpretation and field sampling to finalize design parameters.” In plain terms, Atlas is following SLR's advice and deepening the hydrology work to limit one of the major construction risks.

In short: two tiny lines in dollar terms, but this is where the next two catalysts are being built: the senior-debt term sheet and the conversion of the MOUs into binding contracts.

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Once the junk is cleared out, I look for the 1% worth committing capital to, and under what conditions.

At this level, there’s no filter left. It’s dozens of hours digging through every single filing to find the detail the market missed. If it exists.

Here are 5 companies that made it through all these steps, why they did, and what I’m waiting for before I pull the trigger.

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A Niche Compounder, One Brussels Vote Away From Greatness

I-Tech AB; Ticker: ITECH.ST; Price: SEK 63.3; Market Cap: SEK 760M; Distance from ATH: -50%; Country: Sweden.

A ship needs a very smooth hull to move fast and cheap. Nature, of course, couldn't care less: dozens of organisms have a nasty habit of latching onto the hull. Everything that clings to it is called fouling. A hull full of fouling means up to 40% more fuel and slower voyages. When globalization depends on those voyages, efficiency isn't optional.

I-Tech sells Selektope, a product that targets one of the main sources of fouling: barnacles. It's the only antifouling on the market that is, all at once:

• non-metallic (most antifoulings rely on copper, which is increasingly under fire);

• non-lethal (it overstimulates barnacle larvae and stops them from settling);

• effective at a tiny dose (0.1%), in a global regulatory environment increasingly worried about biocide concentrations in hull paints;

• effective even on a stationary hull, where most antifoulings lose their bite once the ship stops moving.

I-Tech sells Selektope to nearly all the big marine coatings makers, who then resell the paint that contains it. And once Selektope is in a formula, there's no getting it out.

Selektope is on just about 3,000 ships, out of a global fleet of roughly 100,000 (a TAM clearly inflated by management, but the point stands: the room to grow is enormous).

A hull keeps its paint for about 5 years before the next drydocking (yes, that's recurring revenue). Selektope has been through only about two cycles so far. In an ultra-conservative industry, allergic to the slightest change, two successful cycles start to build a track record that can win over even the most reluctant buyers.

Almost all of its revenue comes from Asia, where the paint makers and the shipyards are. Barely 2% from Europe, and yet Europe is the source of I-Tech's biggest problem: regulation.

In late 2025, the European Commission proposed not to renew the approval of medetomidine (Selektope’s active ingredient), suspected of being an endocrine disruptor (which I-Tech disputes). The stock is down about 50% from its peak.

If the EU doesn't renew the approval, two major consequences:

• European approval often carries weight beyond the EU. If Europe says no, other regulators could be tempted to follow.

• Without approval, Selektope could no longer be placed on the EU market, and a ship carrying it would become a headache to sell to a European owner or re-flag in the EU. And ships travel: over 25 to 30 years, they change hands and flags more than once. So it's a huge incentive for every paint maker not to offer Selektope to a client whose ships might one day end up European. And that "might" matters. Even if Europe isn't in the plan, the "just in case" often wins the owner over, and it costs the coatings maker almost nothing to sell a different paint instead.

Approval = thesis largely intact. No approval = a serious setback for the business model and its future. In between, a whole spectrum of outcomes (conditional approval, limited duration, and so on), each with different consequences for I-Tech. For now, the business is holding up.

The company is refocusing on R&D to diversify. But that’s too many “ifs” to build a thesis on today.

The final decision was expected around mid-2026, after a member-state vote in the first half of the year. But the approval has just been extended to 31 December 2026, because the assessment couldn’t be finalized in time. In the meeting minutes, some heavyweight member states come out flatly opposed. That said, this latest extension may be a sign that consensus is hard to reach, and that “no” is less of a foregone conclusion than it looks. What’s almost certain: if approval comes, it will be time-limited (say, 4 to 8 years) and conditional.

Trigger: a non-approval is a dealbreaker for me, and right now it's the most likely scenario. If approval comes, I still need to see the duration and the conditions. The only certainty today is that we’re dealing with a capable management team and an exceptional product, with the makings of a niche compounder that could grow into a very nice mid cap. If the EU is willing, of course.

Got something out of this? Do one thing: hit like and forward it to one investor who'd want to read it. That's how the undiscovered get discovered.

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A Toy Store With a Moat That Beat Nvidia

Build-A-Bear; Ticker: BBW.NYSE; Price: $37.21; Market Cap: $468M; Distance from ATH: -50%; Country: USA.

Originally, Build-A-Bear sold build-your-own stuffed animals through a ceremony that mimics a birth. After serious trouble tied to a very asset-heavy balance sheet and a former CEO’s strategy that had grown ill-suited to the market, Build-A-Bear pulled off one of the most value-creating moves there is: going from asset-heavy to asset-light. From the COVID bottom to its late-2025 ATH, the stock did a 75x in five years, outperforming Nvidia itself.

I owned Build-A-Bear myself for a good part of that run, and it’s my biggest gain to date. I’ve been out of the stock for over a year, and that could change soon.

To understand Build-A-Bear, look at its moat: it sells an experience. You come in either to build your own bear or to immerse yourself in a world, that’s the reason 80% of store visits are planned.

This moat comes with three big advantages.

First, when mall traffic collapses, an impulse store dies with it, while a destination store like Build-A-Bear holds up far better. During the FY 2024-2025 period, BBW’s traffic was down less than 1% versus 5% for a national benchmark. Of course, mall owners know it and actively seek out a Build-A-Bear for their mall, which obviously gets BBW ideal lease terms.

Second, the moat strengthens itself. The thirty-somethings who built their bear twenty years ago now bring their own kids, and buy one for themselves. This Kidult segment has taken off and now accounts for 40% of revenue. Good luck to the competitor who wants to rebuild thirty years of memories.

Finally, what retail customers love, companies want. That moat has opened partner-operated locations and franchises on nearly every continent (38 countries vs. 19 two years ago). CapEx is limited, margins are far higher, and it has been the growth engine of the past few years. The same argument works for the wholesale segment, where Build-A-Bear sells its products in more than 1,500 Walmarts with double-digit growth.

Financially, the balance sheet is clean. The company generated around $40M of free cash flow last year and used part of it to deliver an 8% shareholder yield. It learned from past mistakes and conflicts with former shareholders, and has bought back 25% of its shares since 2019. It's safe to call it shareholder-friendly. My only gripe: I'd like to see it ease off the buybacks when the stock runs hot.

Two reasons explain this -50%:

• Tariffs cost $4M in 2025, with $10M guided for 2026.

• US consumer confidence (the bulk of revenue) is at rock bottom. During Q1-26, domestic traffic fell 7% and e-commerce demand fell 26%. Almost every retailer has been punished over the past few months.

On tariffs, management has offset part of it with selective price increases. The macro backdrop limits how far that lever can go for now, so those increases haven't fully covered the tariffs.

On the consumer, I think the market overestimates the impact for Build-A-Bear:

• Build-A-Bear's customer base is more economically stable and diverse than the average retailer's. So even with traffic down 7%, a higher dollar per transaction held net retail sales to around -5%.

• The e-commerce drop mostly comes down to Google's AI search problems. It's a known issue, and management has hired and lined up partnerships to fix it.

• The capital-light features (franchise, royalties, and so on) offset the weakness in direct-to-consumer. That's why it printed a solid Q1-26 despite all the domestic headwinds (still down 2% versus the record Q1-25, but holding). Very few of its publicly traded competitors can say the same.

It's not all rosy right now, and the company is guiding for continued DTC pressure through the rest of the year. But even after cutting its guidance for the year, it's still aiming for its best year ever in terms of revenue.

We’re potentially looking at a cyclical trough, offering a nice buying opportunity for a company that holds every card to weather a longer-than-expected cycle and to thrive for years.

Trigger: the business model has grown more complex in moving from asset-heavy to asset-light. It's now harder to forecast where Build-A-Bear will be in five years with these new variables. So I have to be more demanding on the margin of safety, and I'd only start a position below $30.

That's two of the five, and you already have the exact trigger on each.

The other three are the ones I rate highest:

• An exceptional company, and my way to play the biggest sector conviction I hold for the coming decade.

• A monopoly compounding in plain sight for years, run by one of the best management teams I've ever seen.

• A Japanese compounder that created its own sector, now at the cheapest multiple in its history while it prints record quarter after record quarter.

Each gets the same treatment as the first two: why it survived the filter, and the precise price or event I'm waiting for before I buy.

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Too bad for us, they’re a constant. Even with perfect foresight, you'd still face 76%. The only variable left is you.

You open your broker app, your portfolio is down too many percent. Red pixels bombard your retinas, your finger hovers over the sell button and… calm down.

Because our good old friend Science is already on it. She named our flaws one by one, and handed us the patches.

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From Red Pixels to Capital Loss

Evolution has had exactly one goal for the last few million years: to get us through the next few seconds, over and over, until we reproduce.1

But when you apply tools custom-built for the next few seconds to decade-long objectives like investing, the damage is inevitable.

There are three culprits. Or rather, two accomplices and one executioner.

Accomplice #1

It’s just an accomplice, but an accomplice in almost every crime linked to bad decisions.

You’re bound to know it, you experience it dozens of times a day. The aptly named: anchoring bias.

What your brain records is a deviation from a reference point, never an absolute price.2 And with every new high, that reference point resets.

Here is the experiment through which Kahneman & Tversky established it in Prospect Theory (the work that destroyed the homo economicus hypothesis, no less).

They showed that perceiving a situation as a loss feels psychologically twice as painful as perceiving it as a gain, even when the expected value is the same: $1,500 in every case.3

“That’s just psychology students making bad decisions. I’m an investor. Being rational is literally my job.” Okay.

You buy a stock. At random, Atlas Salt. You buy it at $1, it goes to $2. Great, you made a 2x. But you’re a long-term investor (or greedy, your call), so you don’t sell. The stock falls back to $1. So what, you’re flat, right? You sure? Not a single part of you would say: damn, I could have sold at 2x?

Of course you would. This dependence on the reference point is coded into our genes. This simple mechanism is probably responsible for trillions in losses over the years. (I have no proof, it’s just a deep conviction.)

In everyday life, it tends to fly solo. But in investing, it has a very close friend. And that’s our second accomplice.

Accomplice #2

Its name is myopic loss aversion.

If the first one creates the pain, this one multiplies it.

Loss aversion is our natural tendency to suffer more from a loss of X than to enjoy a gain of X (another gift from Kahneman & Tversky, they earned that Nobel Prize).

The myopic part emerges when evaluation frequency gets too high. The effect plays out in two steps: the more you check, the more frequently the reference point shifts, the more the pain multiplies.

With markets trading continuously for 6+ hours a day, five days a week, the myopic part has everything it needs to thrive.

Take a negative annual return of -30% and show it to two groups.

• Low Frequency group (LF): sees the performance once a year.

• High Frequency group (HF): sees it once a month.

Both groups are subject to loss aversion (they’re all human). The only variable is frequency, and therefore the impact of myopia. Result: the LF group was willing to invest 69.6% in stocks vs 40.9% for the HF group. A risk aversion almost twice as high, just from seeing the same -30% more frequently.4

And that was the beginner version of the experiment. In reality, investors can check their portfolio multiple times a day, and more importantly, they can buy or sell. That’s where the real culprit steps in.

The Culprit

The executioner finally takes the stage. Its name: the disposition effect.

No need for imaginary skeptical investors here. It has been documented across tens of thousands of real investors, from the beginner who barely knows where to click to the institutional manager running a billion-dollar portfolio.

The deeper investors were in drawdown, the more they acted, and those actions concentrated on keeping or buying more losers and selling winners to compensate.5

If you have any doubt about the quality of that strategy, let me remove it: it is the worst of all. I simulated millions of portfolios to analyze the evolution of opportunity cost, and it is by far the worst strategy. As for the best one, you’ll find the full post here.

One last finding. You have to appreciate the irony: selling randomly would have outperformed their actual sell decisions. A finding that also came up in my own simulation.

Investors spend hundreds, sometimes thousands, of hours a year analyzing companies, and yet a random strategy would have outperformed them on average.6

But it is what it is. Losers tend to keep losing, and winners tend to keep winning.

Between 3 and 4% of annual returns evaporated (or rather, transferred) because of the disposition effect.

The anchoring bias and myopic loss aversion are the two sidekicks pushing toward violence, but it is the disposition effect that pulls the trigger.

Less trivially:

• Anchoring bias: We observe prices and performance from a reference point that shifts with every new comparison.

• Myopic loss aversion: The more we compare, the more any given move carries a disproportionate impact.

• The disposition effect: The deeper the drawdown, the more we tend toward the most value-destructive behaviors.

Diagnosis complete. On to the cure.

The Patches

It’s psychology, there’s no magic trick on its own. Just a few tricks that become magic with a good dose of discipline.

Patch #1

Let’s start with Kahneman’s own favorite method, “invented” by Gary Klein: the pre-mortem.7

Before a buy, you assume you will eventually sell, with certainty. Then you list as many scenarios as possible and sort them into two piles:

• The broken thesis pile

• The noise pile

As soon as a scenario unfolds, you check, and based on which pile it’s in, you sell or you hold.

What, sounds too basic? So what? Human psychology tends to be too.

Two groups of participants are asked to imagine causes for a future event (e.g., why would I sell?), with only one change in the prompt:

• Group 1: the event might happen.

• Group 2: the event will happen, with certainty.

Just by changing the framing from a possible event to a certain event, Group 2 generated 30% more reasons.8

The trick is simple and effective. But it’s clearly not enough.

Patch #2

It’s my second favorite patch.

People are asked to manage a random project with an allocated budget. Everyone goes through 3 phases: positive feedback, then mixed, then downright negative. The idea: build their confidence, then discourage them, to see how far they’ll take the investment project.

Small twist that changes everything, the base instruction varies (again):

• Group 1: “We want to judge the project as neutral observers, regardless of past decisions.”

• Group 2: “If we are about to make an investment decision, then we will judge the project as neutral observers, regardless of past decisions.”

Group 1 sinks into escalation of commitment despite the negative feedback. Only Group 2 escapes it.9

Yet the only thing that changes is the wording, from vague goal to if + then. And that’s the entire power of implementation intention.

By placing the environment inside a specific "if" and tying it to a precise action through "then", you close the door on dozens of cognitive biases.

It’s prompt engineering, but for biological intelligence.

Patch #3

Myopic loss aversion comes from feedback frequency. So if a cause leads to a negative consequence, just remove the cause.

That’s exactly the advice from Benartzi & Thaler (from accomplice #2): focus on information design. Build an information system where feedback access is limited.

It can be many things: deleting apps with live price quotes, logging off once you’re done, etc.

But this only goes so far. The financial industry is literally designed to bury us in information and noisy feedback.

This is where the final patch comes in.

Patch #4

No study here, it’s a personal (and my favorite) trick backed by my experience and nothing else. But it works incredibly well (at least on me).

The 3 previous solutions share one goal: reduce feedback frequency and its impact on our decisions.

Here, the idea is to flip the feedback’s signal: negative becomes positive.

When I’m building a position, I always leave 5 to 15% of my target final position as a limit order at an absurdly low price.

So every time the price drops, the message shifts: from “I’m losing more money” to “I might get to buy this company at an absurd price.”

Of course, you have to have done the work and have confidence in your thesis. Nothing’s free in investing.

But combine this trick with the previous three, and the drawdown is no longer a danger signal, but rather a boring opportunity you saw coming, or noise until something ticks a box on your thesis-breaker list.

Here's the full list of tricks to put in place:

• Pre-mortem: Assume you’ll sell with certainty, and sort as many facts as you can into two piles: noise vs broken thesis.

• Implementation intention: When building those piles, write each intention explicitly as if + then.

• Information design: Minimize feedback exposure to defuse the myopic loss aversion effect.

• Opportunistic limit order: Leave a few limit orders sitting at extremely low prices to flip the drawdown signal from loss to opportunity.

And here's how the system works:

There’s bound to be someone in your contacts who needs this. Be the friend who shares it.

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Et voilà, the science of not giving a f*ck about drawdowns.

Some would say the ultimate patch against bad decisions during a drawdown is experience. I think that gets it backwards.

Experience is the accumulation of data. Wisdom is the ability to extract useful rules from it.

Of course, don't be dumb and learn from your mistakes. But more than that, be smart and learn from others’.

Our good old friend Science is just the most efficient and standardized method to do exactly that.

To keep learning and improving as an investor through science:

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One quick last thing: thanks a lot for your feedback on my first two investing theses published in this newsletter. All your messages and comments made the work worth it.

You can find them here.

More coming very soon.

Right back to it.

Take care,
Flo

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It’s just basic math.

Of course, Great Atlantic Salt still has to be built.

If you have no idea what I am talking about, start with my full Atlas Salt thesis. It is the foundation for everything that follows here.

It came to me just as I was falling asleep. The idea felt like a eureka moment. But it quickly felt so obvious that it became suspicious.

I spent half the night checking whether I was missing something. And no, I was not. I had found a better way to play the same setup.

This is the joy of microcaps. Alpha is common. It is just extremely well hidden.

This time, it will not take 40,000 words. Just 8,000. The setup rests on Atlas Salt, with one structural subtlety that changes everything.

The alpha is the name. The full deep dive is for paid subscribers only.

One undiscovered company at the right price makes the cost of this newsletter trivial. I am convinced this company, at this price, is one.

By going Pro, you also get access to all previous deep dives of the same quality, and obviously, the ones to come (one to two per month, plus follow-ups).

Become a Pro Member

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At first glance, the company is easy to dismiss. It operates in a corner of the economy most investors do not even know exists, with no close publicly listed peer, and almost no natural public-market investor base.

The fact that the project exists at all is unusual: North America has not seen a comparable new entrant emerge in a generation. In this market, a company needs a rare combination of scale, cost advantage, logistics, customer relevance, and timing before it can even matter. This company has all of them.

Disclosure: I have skin in the game. I’ve been a shareholder for months, and I bought more during the writing of this investment thesis. That creates an obvious bias. The only honest way to handle it is to make the machinery visible: every assumption, every number, every calculation, and every place where the conclusion could be wrong. Do not take my word for it. Check the work. Then check it again.

The aim of this piece is to make the entire chain explicit: the upside, the downside, the assumptions, and the asymmetry between them. I spent over 500 hours on this thesis, condensed into 40,000 words, because the full answer emerges when you grasp the whole picture.

That level of work is deliberate. I spend 90 hours a week analyzing businesses, writing, reading filings, rebuilding models. This newsletter is where I publish the work, and I want it held to the same standard.

If this is the kind of work you want more of, join the list.

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The valuation section includes the full DCF, with every figure and assumption made explicit.

Table of Contents

01. An Overview of the Company

02. The Salt Market

• The $26 Billion Picture

• Not All Salt Is Created Equal

• One Molecule, Three Jobs

  • TINA

  • The Implication for an Upstream Producer

• How the Market Actually Works

  • The Buyer Side

  • The Seller Side

• Demand That Does Not Bend

• A Supply Base Frozen Since 2001

• Import Dependence, Weeks Away

• Pricing Without a Market

• Where the Margins Are

• Climate & Environment: The Objections That Do Not Stick

• Where This Leaves Us

03. Atlas Salt’s Mine: Great Atlantic Salt

• The Deposit

• Transport Logistics as a Moat

• The Operational Design

• The Social Component

  • Permitting

  • Jurisdiction and Community

  • Environmental Profile

04. The Business Model

• The Product: One Feedstock, Several Commercial Formats

• Where Atlas Plans to Sell

• How It Actually Sells: CIF, DAP, FOB

• The Contracts

  • Scotwood Industries: Commercial Offtake + Canadian JV

  • Sandvik Mining: Equipment + Vendor Financing

  • Hatch Ltd.: Lead Engineering & IPD Partner

  • Continental Conveyor: Material Handling + IPD Partner

05. Management and Alignment

• The Operators

  • Patrick Laracy: The Founder Who Stayed

  • Rowland Howe: The Man Who Knows the Competition

  • Nolan Peterson: The Executor

• The Construction Bench

• The Cap Table

• The Royalty

• What Laracy’s Alignment Means for Shareholders

• The Net Read

06. A Quick Look at the Financial Statements

• The Wrong Place to Look for Value

• Balance Sheet Snapshot

• The Cash Question

• The Next Step

07. Financing

• What Atlas Needs to Fund

• The Debt Architecture

• The Cost of Financing

• What to Watch

08. The NPV: Decoding the C$920M Headline

• The Revenue Side

  • The Price

  • The Volume Schedule

  • The Escalation

• The Cost Side

  • The Build

  • Sustaining Capital

  • Operating Cost

  • The Royalty and the Taxes

• The Sensitivity Analysis

• The Discounting Mechanics

  • Why 8%?

  • My Choice of Discount Rate

09. Risks

• The Financing

• The Build

• The Commercial Ramp

• The Salt Price

• The Permitting Tail

• The Port Agreement

10. Valuation

• The Ratio and Its Double Reading

• Qualitative Valuation

• Quantitative Valuation

  • Financing Costs

  • Working Capital and Corporate Overhead

  • Residual Risk Reserve

  • Execution

  • Salt Price

  • Sales Mix

  • Dilution

  • How Much Is Atlas Salt Worth?

11. Repricing

• Recognition

  • The Critical Gates

  • The Variables

  • The External Catalysts

  • Timing and Sequence

• Sit-on-your-Ass

• Someone Else Pays

  • Why M&A

  • When M&A

  • Management’s Take

  • Signals to Watch

12. My Final Take

13. A Better Way to Play the Setup

01. An Overview of the Company

The company is Atlas Salt Inc., listed under the ticker SALT on the TSX Venture Exchange and SALQF on the OTC market in the United States. Its market cap is around C$120 million (US$88M).

The project, Great Atlantic Salt, is a planned underground salt mine in Newfoundland and Labrador (NL), Canada, wholly owned by Atlas Salt.

If that sentence made you want to stop reading, that is exactly why I think it is so cheap.

The 2025 Updated Feasibility Study (UFS) gives Atlas a 24.25-year reserve-case mine plan:

• 95.0 Mt of Probable Reserves,

• C$272 million of average annual pre-tax cash flow,

• and a C$920 million after-tax NPV at an 8% discount rate.

That is only the reserve case. The 95 Mt sits inside a much larger resource envelope: 288 Mt of additional Indicated Resources + 868 Mt of Inferred Resources, to which the UFS assigns no value.

Atlas trades at a P/NPV of approximately 0.13x,1 about 1/2 to 1/3 of the level at which comparable feasibility-stage mine developers typically trade, even though many of them arguably carry more risk than Great Atlantic Salt.

In the last eighteen months, Atlas has rebuilt the team around construction. A new CEO was hired. The project now has tier-one names attached across the build chain: non-binding MOUs on equipment, financing support, distribution, and engineering/delivery. Early works have started on site. The project-financing process is now underway.

The stock still trades as if almost none of that progress has been priced in.

And that is before the main point of the thesis.

My conviction is that the UFS materially understates Great Atlantic’s earning power. Most of the next 40,000 words are the work behind that sentence.

The first step is the salt market itself. A large part of the story, and a large part of the mispricing, sits there.

02. The Salt Market

In January 2026, for the second consecutive year, parts of Ontario ran out of contracted deicing salt supply and turned to the spot market. Emergency spot prices reached nearly C$300 per tonne, more than 4x normal bulk pricing, in a matter of weeks.2

More than a hundred trucks lined up outside Goderich, the world’s largest underground salt mine, waiting for product the mine couldn’t deliver fast enough. Municipalities were rationing supply, spreading salt at just a quarter of normal rates, while private contractors scrambled for every tonne of deicing salt they could find. They were paying nearly C$300 per tonne for what little they could get. They had to. And in a hard winter, they will again.

This is what an undersupplied and fragmented market looks like when winter hits. And yet, the salt market has no exchange ticker, no ETF, and no CNBC segment. A product as old as civilization, a use case nobody finds exciting, and a US$26 billion market that Wall Street can’t be bothered to cover.3 Precisely the kind of sector worth digging into.

The $26 Billion Picture

The global salt market is worth around US$26 billion, with annual production of approximately 270 million tonnes. Deicing is only about 13% of global salt demand, and even that demand is not spread evenly across the map. It sits where winter actually forces governments to act: North America and Northern Europe. Northern Europe matters, but it is approximately one-quarter the size of North America’s deicing market. So we start here.

And even North America is too broad. Road salt is not really a continent-wide market. It is a logistics market wearing a commodity label. The core sits in the East, where winter is frequent and unforgiving. For Atlas, the relevant map is therefore much smaller: eastern Canada and the U.S. East Coast.

The eastern North American deicing market consumes between 30 and 36 million tonnes of salt in any given year, depending on winter severity.4 This is, for all practical purposes, one cross-border physical market, even if it remains fragmented commercially and logistically. Canadian rock salt moves into American cities, and American production moves north into Canada.5 In plain terms, the border is broadly administrative.

The U.S. accounts for the majority of this consumption and provides by far the most granular public data. The analysis that follows relies on U.S. data because that’s where the data is, but in practice, market dynamics are similar enough on both sides of the border for the U.S. data to be useful.

In most commodity markets, a persistent supply gap attracts capital, but not in eastern North American salt. When a product can cost more to ship than to produce, every additional kilometer is a burden. That is where the economics are decided, including Atlas Salt’s future economics.

Not All Salt Is Created Equal

Walk through any Department of Transportation (DOT)6 yard in February and you’ll see the same molecule in three or four different forms. A dome of dry rock salt. Tanker trucks of clear liquid brine. A second pile, slightly damp and faintly brown, coated with magnesium chloride and an organic additive. At the spreader, an operator sprays more brine onto the dry salt as it leaves the spinner.

At the center of all of it is sodium chloride. The variations are delivery systems around one feedstock.

The standard taxonomy sorts salt by production method and hides the chain underneath.

1. Rock salt comes straight out of a mine.

2. Brine is rock salt dissolved in water (in winter maintenance).

3. Vacuum pan salt is produced by evaporating purified brine back into crystals.

4. Only solar salt takes a different path: seawater or lake water evaporated by the sun in coastal ponds.

All four are sodium chloride and all four can melt ice.7 The market is still not a four-way contest. Vacuum pan salt does not belong on highways, it is too expensive for that. Its markets are food, pharma, and industrial applications. Brine reaches the road as a liquid for anti-icing and pre-wetting, and the brine DOTs spray is almost always made on-site by dissolving rock salt in water. Collapse the chain, and the deicing market has two real upstream inputs: locally mined rock salt and imported rock and solar salt from coastal evaporation ponds.8 Everything between the mine and the road is downstream chemistry around one of those two.

One Molecule, Three Jobs

Winter maintenance runs on three operations.

Anti-icing happens before snow falls or freezing rain begins. Crews spray a liquid brine onto dry pavement hours ahead of the event, typically a 23.3% NaCl solution, the eutectic concentration9 of sodium chloride in water. The brine leaves a thin salt film on the pavement and stops ice from bonding to the asphalt. When the storm arrives, plows can clear the road. Anti-icing has become standard practice across most snow-state DOTs because it prevents snow and ice from bonding to the pavement, making plowing more effective and materially reducing the amount of chemical needed versus reactive deicing alone.10

Deicing is the reactive application during and after the storm: dry or pre-wetted salt spread onto bonded snow and ice to break the bond so plows can scrape it off. This is what most people picture when they think of “salting the roads.”

Pre-wetting is the in-between move. Liquid brine is sprayed onto the dry salt at the spinner, just before it hits the pavement. Wet salt sticks to the road instead of bouncing into the ditch. It dissolves faster and starts working sooner. Agencies that use pre-wetting properly report 20% to 30% reductions in total salt usage at the same level of service.11

Less rock salt, then? Atlas is going to mine rock salt. Bad for business, right? No. Where brine is used, it is usually made on site by dissolving rock salt in water. Treated salt is rock salt coated with small amounts of chloride brine and, in some cases, organic additives. The dry salt is rock salt.

A single tonne mined in Goderich or Cayuga, or eventually in the future Atlas Salt’s Great Atlantic Salt, can leave the mine and end up on the road as dry crystals, as 23% brine, or as treated salt with a chemical coating. The downstream chemistry is the buyer’s local decision. The upstream supply is the same molecule from the same kind of mine.

TINA

Calcium chloride and magnesium chloride sometimes get called “alternatives” to road salt, which misreads what they do. Their economics, at 3 to 5 times the cost per tonne, rule them out as primary deicers. Their job is narrower: extending the working temperature range of a rock salt program.

Sodium chloride starts losing effectiveness around -10°C. Calcium chloride works down to approximately -25°C, magnesium chloride down to about -15°C. When pavement temperatures collapse, agencies do not switch to calcium chloride across the board. They spike a calcium chloride solution into their brine, or coat their rock salt with it, and get the extra temperature range without paying full alternative-chloride prices on every tonne. Most treated salt is some version of this: rock salt with a brine coating that extends its useful range by 10 to 15 degrees.

Acetates and formates are a separate category. Potassium acetate, sodium acetate, calcium magnesium acetate, and related products do not contain chloride; they are therefore generally less corrosive. That matters mainly in two places. Airports, where chloride contact with aircraft is a non-starter and deicing products must meet specific aviation standards. And a small set of bridges and parking structures where corrosion risk can justify paying 10 to 20 times the cost of rock salt.12 Everywhere else, acetates and formates remain a rounding error in volume.

Sand and abrasives are also used, but they play a different game. They do not melt anything; they provide traction on top of ice when temperatures drop below what any chemical can fix, or on rural roads where the cost-benefit math does not justify a chemical program at all. Most agencies that use sand still mix in 5% to 10% salt to keep the stockpile from freezing solid.13

I will leave the final word to the United States Geological Survey14:

The Implication for an Upstream Producer

A rock salt mine sits upstream of the entire deicing system. Dry tonnes for direct application. Brine feedstock for anti-icing programs. Base material for treated salt and pre-wetted formulations. Almost every operation, every chemistry trick, every “smart-salting” innovation municipalities have adopted over the last two decades starts with rock salt.

Atlas sits at that input point: dry salt for direct use, feedstock for brine and treated products, and emergency tonnage when winter breaks the procurement plan. It is building a feedstock source for a system already under strain, and in hard winters, one setback away from breaking.

Let’s focus on the strain.

How the Market Actually Works

The Buyer Side

The buyers split into three tiers.

The first is government: state and provincial Departments of Transportation (DOT), counties, municipalities, the people who keep highways open or get blamed if they do not. Together they account for approximately 70 to 80% of North American deicing rock salt consumption (a national average; the split varies meaningfully by state and by density of development).15

The second tier is commercial. Professional snow management companies servicing parking lots, warehouses, hospitals, and corporate campuses under seasonal contracts, plus the facility managers of large retailers and logistics operators who buy directly. About 15% to 20% of volume.

The third is retail. Homeowners buying 10 kg bags at Home Depot, Walmart, grocery stores, and hardware stores. The remaining 5% to 10%, give or take, is an entirely different economic creature. The buyer here is the person who slipped on their own porch last February and decided never again.

The three tiers buy on completely different terms.

Government buys most of its deicing salt on the calendar. A state DOT or provincial transportation agency signs its contracts months ahead of winter, usually between May and August, for a season that won’t start until November. The salt is usually delivered in September and October, stored in the salt domes and sheds you see along the highways, and used through April. The public buyer usually does not buy from a single national supplier; it carves its territory into zones (e.g., Massachusetts has eighteen contract zones) and each zone is awarded to a single vendor for the entire season. The contract sets a volume band: the buyer commits to a minimum, usually 60-80% of estimated quantities, and the vendor commits to a maximum of 110-140%.16 Anything above that contracted band falls outside the contract economics. Once the protected tonnage is gone, buyers are competing for uncommitted supply at market prices. Call it spot, emergency supply, or panic procurement; the mechanism is the same. Ontario in January 2026 was just the mechanism in public view. Counties and municipalities buy in smaller quantities, sometimes through their own contracts, more often through pooled bids run by a state or provincial agency to capture the volume discount.17

Commercial buyers play a harder game. Their contracts are usually signed between a property owner or facility manager and a snow management contractor, not directly with a salt supplier. The pricing model determines who carries the weather risk:

• In a per-push contract, the contractor gets paid each time crews service the site.

• In a per-inch contract, the price rises with snowfall depth.

• In time-and-materials contracts, labor, equipment hours, salt, and other materials are billed as used.

• In a seasonal flat-rate contract, the customer pays one fixed fee for the winter, regardless of how often it snows.

Each model transfers weather risk differently, but all of them end in the same place: the contractor has to source the salt.18 There are approximately 22,000 commercial snow contractors in the United States.19 Most of them buy from a regional bulk distributor. That layer exists precisely because integrated producers won’t build a commercial team, a dispatch desk, and a fleet of trucks to chase 22,000 individual contractors, many of them ordering a few hundred tonnes. The math only works at public-bid scale.

Retail does not really buy; it panics (yes, I’m still talking about deicing salt). When a storm is forecast, shelves empty. Season-to-season demand is more volatile than the two bulk tiers, but the long-run floor is the same: across much of the Northeast, homeowners and property managers are expected, and often legally required, to keep sidewalks and walkways clear. A slip-and-fall claim20 turns a ten-dollar bag of salt into cheap insurance.

Everyone needs salt before the storm. But not everyone can get it on the same terms. That is why a 10 kg bag of salt can end up costing several times more per-tonne than the bulk road salt purchased by a DOT, even before a storm hits.

The Seller Side

On the seller side, 4 structurally different types of players exist. Each controls a different bottleneck.

The first is the integrated producer. Compass Minerals owns the Goderich mine, operates the mine-site loading infrastructure, controls an extensive network of regional storage depots, contracts for bulk vessels, barges, rail, and trucking, and sells directly into public-sector contracts. This end-to-end integration took decades to build, but it allows the producer to invoice on a delivered-price basis. Almost all major North American rock salt producers are integrated this way, and that is part of what makes the segment effectively closed to direct competition.

The second is the port operator. Take Eastern Salt. It does not need to own the mine. It owns or controls the local bottleneck: bulk vessel unloading, storage, trucking, and relationships with public buyers. Eastern Salt buys imported salt from foreign producers, brings it into its terminal, stores it, and resells it at a delivered price to the same public buyers. Without this intermediary layer, distant importers would struggle to sell physical tonnes into the United States.

The third is the regional bulk distributor. Companies like Midwest Salt, Ninja De-Icer, or SISCU. They do not mine anything. They buy in volume from integrated producers, from port operators, and sometimes directly from exporters, then they store the salt in their own depots and resell it in flexible truckloads to the thousands of contractors no integrated producer wants to serve directly. They run 24/7 in season and deliver next-day, sometimes same day. They’re the lubricant that lets an already-tight system function, until the salt itself becomes the constraint. Lately, that has meant many winters (more on the causes and consequences later). Without them, the commercial tier collapses.

The fourth is the distant importer, mainly Chilean, Egyptian, and Moroccan producers. They load a bulk carrier at the port of origin, cross the ocean in two to four weeks, and unload dockside in Boston, Philadelphia, or Baltimore. They own nothing in the United States. They sell to a port operator or to a distributor with import capacity, and that buyer takes it from there. What makes their model economically viable despite the distance is their extremely low FOB port (Free on Board, the price at the port before shipping costs): dry climates that allow solar evaporation, lower labor costs, open-pit mines with no underground CapEx. Even after 2-3 weeks of ocean freight, the dockside cost in Boston can still remain competitive.

Integrated North American producer, port operator, regional distributor and distant importer. There is one box with no relevant occupant today: a North American producer that sells dockside without downstream integration, the way an exporter would, but a few days from the market instead of a few weeks. No great mystery here: no new rock salt mine has opened in North America in nearly twenty-five years, and the existing mines are almost all integrated by historical inheritance. Atlas Salt could therefore establish a new category, unless it is acquired first (a scenario we’ll cover later).

In short, here is the structure of the deicing rock salt market:

Demand That Does Not Bend

About 70% of U.S. roads are in snowy regions, and nearly 70% of the population lives there. Most deicing salt consumption is concentrated east of the Mississippi. Highway deicing alone accounts for about 41% of total U.S. salt consumption.21 That single application ties year-to-year deicing demand to one variable above all else: how harsh the winter is. “Harsh” here means the frequency of precipitation events that cross the freezing threshold, not temperature alone. Several low-snowfall icing events can consume more salt than a single large storm, which is “good” news for suppliers, because those events occur more often.22 Even during normal winters, North America still imports 8 to 10 Mt of deicing salt, leaving a clear source of demand for a new local supplier able to deliver more reliably.23 Atlas Salt is the only new local greenfield supply candidate positioned to fill that role. The only one in decades.

On the downside, demand has a built-in floor. State DOTs and provincial transportation agencies operate with minimum stockpile targets regardless of how mild the previous winter was. A warm season spreads its demand reduction across subsequent years as agencies draw down reserves before reordering. Private contractors operate much the same way, although they are often the last to be supplied and the first to return to the market when winter conditions turn severe. This asymmetric structure is what makes the market so attractive: demand can surge in any given year, but it rarely drifts far below its baseline. And it shows in the price. Over the past 40 years, U.S. rock salt PPI has compounded at 4% per year versus 2.8% for CPI, and the largest cumulative price decline never exceeded 10%, outside of post-spike corrections. On a chart, it looks like a compounder on a log scale.

This chart is one of the most important in this investment thesis. Salt price is the single most important variable in the investment case, by far. The BLS index tracks the prices received by domestic rock salt producers on their first commercial sale, whether to a DOT or through an intermediary. National, weighted, and smoothed by design. It hides three things.

First, geographic price dispersion: a DOT hundreds of miles inland pays far more per tonne than one next to a lake port, because salt’s low value-to-weight ratio means logistics dominate the delivered cost. The national average erases that gap. Second, downstream markups: the index captures what the producer receives, not what the distributor charges a private contractor three layers down. Between the mine gate and the parking lot, margins expand significantly. Third, and most importantly, spot pricing: the channel where both DOTs and private contractors scramble for every available tonne when winter runs harder than the procurement contracts anticipated.

That spot market is where crisis prices live. Ontario’s 2025-26 winter is the extreme case, but the same mechanism plays out at a smaller scale in many harsh winters, invisible in the headline index. The chart is therefore a proxy for producer pricing with the upside spikes flattened. It hides the operating leverage of every salt producer. In the valuation section, this chart will be our base case. Note that spot-price spikes tend to flow through into the next contracting season, as buyers and suppliers reset expectations around scarcity and replacement cost. Given the spot-price spikes observed in several regions during the 2026 winter season, contracted salt prices are likely to move higher in the next tender cycle.

To understand why public buyers end up paying several times the normal price,24 you have to think like them. As always, it comes down to incentives. Research on a 30-mile Iowa highway segment found accidents increased 1,300% when maintenance was disrupted during severe winter weather events, even as traffic volume fell.25 That 14x multiplier translates into lawsuits, emergency response strain, and political cost for whoever made the call. No politician on either side of the border wants to be the person who let roads go unplowed. Cities apply salt at the first sign of freezing precipitation, and keep applying as long as the supply holds. Private snow-removal contractors operate on the same arithmetic, through a different legal regime. A slip on an unsalted parking lot can become a lawsuit against the property owner. The incentive structure is identical; only the courtroom changes. For both public and private entities, when salt is needed, the money is found.

But sometimes there is simply no salt. The 2008-09 season was the clearest example: depleted stockpiles from the prior winter + Mississippi flooding + hurricane-damaged Louisiana mining equipment = a perfect storm. Iowa DOT opened bids for 31 locations and received… zero offers. The first time in the state’s history. I’ll let you imagine what that meant for the municipalities on the other end of those bids.26

And the public buyer still gets the “better” end of the deal. Private contractors sit below municipalities in every producer’s allocation queue. In early 2026, major suppliers like Morton Salt suspended commercial accounts across several states to prioritize public-sector contracts.27 Contractors received a single-line email from their distributors: “Everybody’s cut off. No more salt.”28 Around the same time, American Rock Salt raised its commercial price by $25 per ton in New York.

Demand is locked by public safety mandates and commercial liability, floored by winter stockpile behavior, prone to spike when winter runs harder than planned, with no viable substitute at any point in the cycle. Whatever goes wrong in this market, it won’t be on the demand side.

A Supply Base Frozen Since 2001

U.S. rock salt production in 2019 was 19.1 million tonnes.29 North of the border, the eastern supply base is heavily anchored by one asset: Compass Minerals’ Goderich mine, which produces approximately 7.25 million tonnes per year from 1,800 feet beneath Lake Huron. But rock salt does not only serve deicing; it also feeds chemical, industrial, and agricultural markets. Once those volumes are accounted for, domestic North American rock salt production falls well short of deicing demand alone. North America must import 8 to 10 million tonnes of deicing salt every year just to keep roads clear.

That gap is the persistent consequence of a supply base that has not expanded in over two decades while demand has quietly grown with population, road networks, vehicle miles, and service-level expectations.30

At the mine gate, U.S. rock salt is a low-value commodity, with benchmark prices around $50-$60 per tonne.31 Not an operating cost, but a producer-level selling price. But that mine-gate price can become an afterthought. In some lanes, transportation costs can exceed the value of the salt itself. This is why geography is the moat: the mine closest on the efficient shipping route usually wins. Short-sea shipping moves the same tonne for a fraction of what trucking costs. The mine closest to a deepwater32 port can serve the largest addressable market. A mine without port access serves whatever fits inside its trucking radius.33 Keep that in mind.

The last new rock salt mine built in North America began production around 2001. Before that, there had been no new mine for more than fifty years. The reason is purely economic: salt deposits are vast and widely distributed, but the revenue per unit is too low to justify the capital expenditure of a greenfield operation unless the logistics are exceptional.34 Even expanding existing mines is difficult: regulatory agencies may require complete facility upgrades to current standards if operators seek permits for new sections, creating compliance costs that are simply prohibitive.35

The major producing base is aging.36 Many of these mines sit hundreds of meters underground, beneath lakes or urban areas, with environmental and permitting constraints. Goderich is the clearest illustration. The mine experienced geological movements that disrupted production in 2017, followed by a three-month worker strike in 2018 that tightened supply across both sides of the border.37

And it is getting worse. Since 2021, North America has lost about 1.5-2.5 Mtpa (million tonnes per annum) of domestic capacity with the permanent closure of Cargill’s Avery Island mine (operating since the mid-1800s). Another 5.5 Mtpa remains in uncertain hands: Cargill’s remaining U.S. assets, both beneath lakes, have been listed for sale since 2023 with no buyer in sight.38 Compass Minerals, operator of the continent’s largest mine at Goderich, is under financial pressure: cutting production in 2024-2025 to pay down debt after a failed lithium diversification, a class action settlement, and a particularly damaging food-grade recall.39 Stone Canyon, North America’s largest salt producer by total volume, is digesting $5.2 billion in acquisitions.40 The rest are either absorbed in integrating existing assets or too regional to move the needle.

In this aging and saturated landscape, one name emerges: Atlas Salt, the only greenfield rock salt mine project in North America in 25 years with a completed feasibility study and early works underway. That scarcity is not a coincidence. The project has structural advantages that make the math work where it has not worked for anyone else in a generation. But that is only one project. For now, the continent still has to fill the gap somewhere else. It imports.

Import Dependence, Weeks Away

Deicing is the most important end use for imported salt. The question is where those 8-10 Mtpa come from, and what constraints they face.

After Canada, Mexico is the closest large foreign source for U.S. salt imports. But Mexican solar salt serves the U.S. West Coast and Asia almost exclusively. For the North American East Coast market, Mexican salt is out of the picture.41 Chilean and Egyptian solar/rock salt reaches the East Coast by ocean, a journey of 14 days or more. It is produced cheaply thanks to low labor costs, low extraction costs, and proximity to deepwater ports.42

When everything lines up, this system works. Imported salt can arrive at the same price, sometimes even cheaper, than the domestic product. It takes lower foreign production costs, favorable exchange rates, and ocean freight rates that undercut overland rail and trucking.43 But that cost advantage rests on everything going right, and it can reverse the moment one variable moves against them. Right now, with Brent having doubled in four months, nothing lines up for foreign salt exporters. And even if fuel prices collapsed tomorrow, cost is only the first problem; the others are time, priority, quality, and recourse.

Even when the salt arrives, it is not necessarily reliable. Distance means less visibility and less control over the counterparty. When a buyer sources foreign salt, it may not know whether it is dealing with a broker or the mine owner, whether its order will be prioritized, whether the product delivered will match the quality purchased, how long the vessel will wait before loading, or what dispute process exists if something goes wrong. Available salt can still become a reliability problem. And even if everything goes well, salt sitting two weeks away by boat cannot help a municipality that runs out of inventory in the middle of a storm. Only a few local producers can.

The policy environment has become less… comfortable with distant imports too. Non-USMCA sources like Chile, Egypt, and Morocco have also faced Section 122 surcharges of 10% following the February 2026 Supreme Court decision.44 USMCA-compliant Canadian salt enters duty-free.45 So far, Canadian road salt has remained outside the main U.S.–Canada tariff pressure points. Canadian rock salt qualifies as USMCA-originating by default, and USMCA-compliant goods remain exempt from the IEEPA tariffs hitting most other Canadian exports. Even if that changed tomorrow, the math would not move much. The deficit is too structural for buyers to source elsewhere, the end customer is a municipality that has to keep the road open, and most North American producers run on margins too thin to absorb a tariff themselves.46 The cost would land where it often lands in tight markets: on the U.S. consumer.

The U.S. has tried to promote domestic salt production, but policy cannot override physical reality. New York’s Buy American Salt Act (December 2022) allows state agencies to prefer U.S.-mined salt when the bid is within 10% of the lowest offer.47 But in practice, the policy mainly exposed how fragile domestic logistics still are. After the 2024-25 shortage, New York officials stepped back from applying the preference to the next road salt solicitation, explicitly stating that the Buy American Salt Act preference would not apply to the 2025-26 replacement contracts.48 They still need imports, and they need them nearby.

A demand floor with sharp spikes, and a supply base that shrinks to local producers when winter bites. In the middle of all this, Great Atlantic Salt is 2 km from a deepwater port on the Atlantic seaboard. The project alone cannot close the entire gap, but its economics are built around this market structure.

What’s left is where supply and demand meet: the price.

Pricing Without a Market

Salt has no liquid futures contract, no exchange-traded benchmark, and no transparent spot market. Pricing happens through negotiated physical contracts, awarded months before winter, or through emergency quotes when everyone is chasing the same tonne of salt.

Contract prices tend to move gradually upward, while emergency prices can reset violently when inventories run short. The buying logic is starting to move from pure lowest-cost purchasing toward security of supply, especially after the shortages of 2025 and 2026. That shift structurally favors domestic producers with proximity to end markets and the ability to respond within days. Atlas Salt can deliver salt in under three days to the nearest East Coast cities (Boston, New York, etc.).49

There is another slice of the deicing market I’ve barely touched so far. It is small in volume, but it plays by completely different economics.

Where the Margins Are

In sales to public buyers, producer margins are thin. The counterparty is a government entity with a public-safety obligation to keep roads usable, and sometimes a legal obligation to do so. This is the floor.

Now take that same salt, bag it, slap a brand on it, and put it on a shelf at Home Depot. At the producer level, packaged salt already sells for almost 2x bulk. By the time it reaches retail, the multiple expands to approximately 6x. Make no mistake: it is the same salt: same NaCl, same purity, same mine. The markup is mostly a function of packaging, distribution, and channel access.

This is why evaluating a salt producer on average revenue per tonne is misleading. What matters is which channels they can reach: packaging lines, logistics networks, and shelf space at major retailers. Few producers have all three. Atlas Salt does not, and probably never will, at least not directly. That said, the company is already trying to capture part of those higher-margin segments through partnerships.

Climate & Environment: The Objections That Do Not Stick

Two objections come up every time someone looks at this market, and they deserve answers before we move to the setup. Both sound reasonable, but neither survives contact with the data.

The first: climate change will kill winter salt demand. No data points in that direction. Instead, climate change is changing the shape of demand. Total precipitation across the Great Lakes states has increased 14% since 1951, while the heaviest 1% of storms have become both wetter and more frequent.50 Warmer average temperatures shift more of that precipitation from snow to rain, and specifically to freezing rain, which can consume more salt per event than snowfall. Researchers studying county-level records from NOAA’s Storm Events Database from 1996 to 2025 found that freezing rain events are not declining. Instead, they are shifting in location and timing, moving later in winter and expanding into regions less prepared for them.51 As one research team put it52:

Climate change makes deicing salt demand less predictable, more concentrated in peak events, and more punishing when supply cannot respond. That, once again, favors producers with proximity.

The second: environmental regulation will restrict road salt. Here the picture is more nuanced. The pressure is real: chloride accumulates in freshwater systems, and the EPA sets toxicity thresholds at 230 mg/L for chronic exposure. Several states have tightened water quality standards. But the regulatory response on the East Coast has been the same: optimize application, do not eliminate it. Pre-treatment brining, calibrated spreaders, GPS-controlled application, anti-icing strategies, and operator training are already part of the toolkit across public winter-maintenance programs.53 No relevant jurisdiction has moved to ban or materially restrict road salt use. The reason is the same one that makes this market what it is: there is nothing else that works at scale for the price.54

Climate change raises the peaks and, in some regions, the floor. Every efficiency gain of the last fifteen years has been absorbed by rising demand. Rock salt consumption is higher today than it was before chloride in rivers became a water-quality concern.

Where This Leaves Us

Every structural feature of this market shows up in a producer’s income statement: revenues, margins, cash flows.

Six structural facts, each compounding the next:

• Demand that does not bend, locked by public safety mandates and by slip-and-fall liability on the commercial side, floored by winter stockpile behavior, compounding at nearly 4% a year for four decades in the floor case.

• A supply base that has not expanded in twenty-five years and is showing stress: mines closing, producers under financial pressure, and capacity for sale in a market that still needs more local supply.

• An 8-to-10-million-tonne structural import gap filled by salt that takes two to three weeks to cross an ocean.

• No economic substitute at scale.

• Climate change making demand less predictable and more peak-loaded.

• A procurement model shifting from lowest-cost to security-of-supply, rewarding exactly what distant imports cannot offer: proximity and reliability.

This is a market that has already broken, visibly, and repeatedly. The structural conditions that caused the break are getting worse. Ontario in January 2026 was the system behaving exactly as designed, with no slack left.

Into this market, one company is building the only new salt mine in North America in over a generation. A shallow, high-purity deposit. Two kilometers from a deepwater port. An Atlantic port open while the Great Lakes are closed. Completed feasibility study. Environmental approval secured. Early works underway. And a valuation that prices in almost none of it. Even less of the market it sits in.

That brings us to Great Atlantic itself.

03. Atlas Salt’s Mine: Great Atlantic Salt

Atlas Salt is, for underwriting purposes, a single-project company. The asset is the Great Atlantic Salt deposit, in western Newfoundland and Labrador (Canada). Here’s why this is the first greenfield rock salt project in 25 years to clear every barrier that has kept new salt mines out of North America.

The Deposit

Start with the rock itself. Atlas’s September 2025 Updated Feasibility Study (UFS; remember this acronym, because I’ll use it a lot) outlines a 24.25-year mine life based on 95.0 million tonnes of Probable Reserves grading 95.9% NaCl (sodium chloride, common salt). Those reserves sit inside a much larger resource envelope: 383 million tonnes of Indicated Mineral Resources at 96.0% NaCl, inclusive of the reserves, and 868 million tonnes of Inferred Mineral Resources at 95.2% NaCl. In plain English, the current mine plan uses 95 Mt, while approximately 288 Mt of additional Indicated Resources and all 868 Mt of Inferred Resources remain outside the reserve-case mine plan. All three categories exceed the 95% NaCl road-salt specification referenced in the UFS. The salt does not need beneficiation or chemical upgrading. Once crushed and screened to specification, it can be sold as road salt.

Mineral Reserves are the drilled, tested, and engineered part of the deposit, with enough confidence to support a bankable mine plan. Indicated Resources carry less confidence than reserves. Inferred Resources carry less confidence again.

The 24.25-year mine life in the UFS has to be understood on those terms. It is a planning horizon built on the Probable Reserve base. SLR, the firm that prepared the UFS, made that explicit: further drilling during production could convert additional material into reserves, and the expansion case extended mine life to 47.5 years, on partial reserve support and with no commitment that the plan would ever be executed.55 The UFS cannot capitalize those later tonnes in reserve-case cash flow today, while management has little economic reason to spend aggressively to prove year 50 before year one exists.

Bedded salt deposits like Great Atlantic tend to convert inferred resources to reserves at rates metal projects rarely match. The deposit is homogeneous, laterally continuous over kilometers, high purity, and grade appears not to vary meaningfully across the envelope. For a mining project, that is exactly the kind of geology you want: boring, repeatable, and hard to misread. Goderich, now Compass Minerals’ flagship mine, became the world’s largest underground salt mine from a remarkably thin original drilling base: 16 vertical core boreholes drilled in the 1950s, later validated by six decades of mining.56 Atlas has drilled forty-eight holes in a shallow, laterally continuous deposit.57

The UFS cannot price what is not yet a reserve. That’s the rule, and SLR follows it: Approximately 288 Mt of Indicated Resources beyond the reserve base, plus the 868 Mt of Inferred Resources, sit outside the reserve-case mine plan and the NPV. I’m not bound by that rule. I could assign part of that 1,156 Mt base a probability-weighted value, based on the geology and the historical track record of bedded salt deposits. I’m not going to. I’m leaving it as free upside. The 95 million tonnes of Probable Reserves are already enough for the thesis.

But there is more. Management’s view is that, once underground, the mine may be able to keep moving horizontally beyond the current reserve, then beyond the current resource, and eventually into undrilled ground. If true, this could translate into lower sustaining capital, lower development cost, and lower unit operating cost than the reserve-constrained UFS can model today. Think of the mine as a stack of levels. Opening a new level is more expensive than extending development horizontally within an existing one. So if Atlas can recover more tonnes than planned from the same level, the economics improve: the fixed development cost is spread over more salt. But again, the UFS cannot include that in the reserve-case economics today. And again, I leave it out, more for lack of data than out of excessive conservatism.

Transport Logistics as a Moat

Once purity and gradation specs are met, deicing rock salt is largely interchangeable. Geography, and the logistics that flow from it, are the moat. Atlas is built around that.

The project sits two kilometers from Turf Point, a deepwater port on the west coast of Newfoundland, with direct access to Atlantic shipping lanes. The design calls for a conveyor linking the mine directly to a ship-loading facility sized for Handysize and Handymax bulk carriers.58 No trucks, just a modest line item in initial CapEx and ongoing maintenance, and the mine-to-port leg is solved upfront. If built as planned, Great Atlantic would be able to serve Boston, New York, Philadelphia, or Baltimore within a 3‑ to 5‑day round trip, narrowing that gap between import lead time and emergency demand in a way Goderich, Cote Blanche, or Chilean and Egyptian salt simply cannot match on the same winter-response basis.

It gets worse inland. Cargill’s remaining U.S. mines and Compass Minerals’ Goderich rely on the St. Lawrence Seaway and the Welland Canal for waterborne access, which close every January and reopen in late March.59 That is exactly when a harsh winter tears through contracted tonnage: DOTs hit their contracted volume ceilings, private contractors run dry, and the spot market takes over. At that point, price is set by whatever tonne can actually reach the customer. Great Lakes producers go silent for ten weeks every winter, restricted to overland delivery within trucking range. Atlas could keep shipping.

The rest of the year, when the Seaway is open and everyone bids into the same public tenders, Atlas’s positioning should still win on distance to market. A short North Atlantic haul to Boston, New York and Philadelphia beats the Great Lakes detour from Goderich, and beats anything Chilean or Egyptian supply can put on a two-to-three-week ocean route. The geography pays in every season, but it also costs something.

Management has built Atlas’s logistics pitch around this advantage, describing Turf Point as “year-round with no seasonal ice closure.”60 That needs one clarification. Turf Point sits in St. George’s Bay, a sub-basin of the Gulf of St. Lawrence that the Canadian Coast Guard designates as Ice Zone Area 2, with a formal ice season running December 21 to April 15.61 This is not the same as being ice-free. However, the Gulf remains navigable through winter with icebreaker support, while the Seaway physically closes. Commercial vessels over 200 gross tonnage transiting an ice zone during the ice season pay a Canadian Coast Guard icebreaking fee. For the 2025-26 fee, that rate is C$3,818.61 per transit.62 Under plausible assumptions about vessel size, billing mechanics, and how much of Atlas’s shipment calendar falls inside the ice window, that translates into somewhere between C$0.03 and C$0.10 per tonne shipped in direct icebreaking fees.63 Against the UFS LOM operating cost of C$28.17/t, it is a rounding error.64

The logistics advantage is physical, but it is neither free nor fully built. Turf Point is an existing third-party-owned port, already operating as an aggregate export facility. Atlas also ships small amounts of gypsum from its Flat Bay mine through Turf Point.65 The existing trestle, ship loader, and caissons can already handle Handymax vessels. What Atlas plans at Turf Point is a brownfield expansion: a new 47,300-tonne storage building, refurbishment of the trestle and ship loader, reclaim conveyors, dredging, and one additional mooring caisson. The UFS puts the port line at C$58.5 million, about 10% of the C$589 million initial capital. That creates normal construction and logistics risk. A second risk, more upstream: no commercial agreement yet binds Atlas to Turf Point. That is normal at this stage. The port owner has strong reasons to sign, and failure to sign strikes me as very unlikely. But it remains the key binary item of the setup. I treat it in detail in the risks section.

The rest is already in place. The St. George’s substation sits 1.4 kilometers from the project, the Trans-Canada Highway runs alongside it, and a regional airport is within reach. Atlas essentially bolts a shallow, laterally continuous salt deposit onto road, power, and air infrastructure that someone else built decades ago.

The Operational Design

Goderich’s mine sits at 550 meters. Cayuga’s, beyond 700 m. Great Atlantic’s is around 180 m. A third of the depth changes the entire economics of the project.

A deep mine needs a vertical shaft: a cage to lower crews, a hoist to lift ore in skips, several years of construction and several hundred million dollars before the first tonne reaches the surface. Atlas can skip that shaft-and-hoist architecture. At 180 meters, the gradient is gentle enough to drive declines that run from the surface down to the orebody. Trucks, conveyors, and personnel can move through ramps (and gravity) instead of relying on a vertical shaft.

The geometry pays a second time. Once underground, you attack the rock. The chosen method is room-and-pillar: you carve a grid of rooms into the salt, leaving pillars of salt untouched between them. The salt mostly holds itself up; that is the point of leaving pillars behind. The method works best on tabular, thick, homogeneous deposits, which is exactly what Great Atlantic is.

Then you have to break the rock. Most underground hard-rock operations still use drill-and-blast: drill holes, pack explosives, fire, clear debris, ventilate and repeat. Atlas chose a continuous miner, a machine that bites into the rock with a rotating head and drops it onto a haulage system. Salt is soft compared to granite or metallic ore, soft enough that mechanical cutting becomes the lower-cost option.

The rest of the flowsheet is deliberately short. An underground crusher and screens size the salt. A conveyor carries it up the declines. At surface, it passes through a 47,300-tonne storage building. From there, a second conveyor carries it the two kilometers to Turf Point, where a dedicated storage and conveyor-fed shiploading system would load vessels for export. But even simplicity carries risks, and the project’s risk profile gets its own section.

In video form (please forgive the music):

Because the design avoids drill-and-blast and uses an electric underground fleet, the ventilation load falls sharply. Great, because ventilation is one of the largest energy line items in a conventional mine. That allows Atlas to design the site as an electric-based operation: electric cutting equipment, battery-electric underground trucks and loaders, power drawn from Newfoundland’s hydroelectric grid. The ESG case wrote itself, and it happened to align with exactly what the province and the local communities wanted to see from a new mine.

The design is not being invented from scratch. Great Atlantic Salt draws heavily on Irish Salt Mining’s Kilroot mine: an underground soft-rock room-and-pillar mine, with an underground conveyor system, and product moved to port for shipment into the deicing market. Atlas’s senior engineers visited Kilroot, and the Great Atlantic study team included engineers with Kilroot experience, especially on ground support, underground conveyor structure, and drift access design. That does not remove execution risk, but it does show that similar mine architecture has worked before. It is also worth noting that Kilroot was developed in the 1960s.

A shallow deposit, a continuous extraction method, a five-step flowsheet, and a conveyor that ends in a ship’s hold. On paper, the operation is about as simple as a salt mine gets. But on the ground, simplicity tends to end where people begin.

The Social Component

A mining project also stands on its ability to clear permits, hold community support, and present a defensible environmental profile.

This part is not necessarily riveting, but it matters. For those who really do not feel like reading it, let me summarize: on these three fronts, Atlas is not only moving without friction but is actively supported by both local stakeholders and the provincial government.

For the rest of you, let’s dissect.

Permitting

Seven weeks. That’s the time it took Newfoundland and Labrador (NL) to release Atlas from its environmental assessment process, from filing to clearance. For mining projects, that is fast. Full environmental assessment processes can run 12 to 18 months, and full environmental-impact-statement cases can stretch over several years. Those seven weeks tell you at least three things. Two are obvious: the file was clean, and the regulator wanted it through. The third is less obvious, and we will get to it when we talk about who runs this company.

At the federal level, the IAAC (Impact Assessment Agency of Canada) confirmed in writing in December 2023 that the project is not subject to a federal impact assessment. Salt mines are not on the list of designated activities, and 4 Mtpa of production does not trigger a designated-project review. Two levels of government and two green lights.

Several approvals and project plans are already in place66: EA, Early Works Development Plan, Environmental Protection Plan, Waste Management, Water Resource Management, Wetland Conservation, Bat Preventative Measures, Gender/Diversity/Equity/Inclusion Plan, and Benefits Plan. What’s left belongs to the construction phase: a separate Capital Development EPP (Environmental Protection Plan), a Mill Licence before operation, and potentially a Fisheries Act Authorization for the in-water works at Turf Point (dredging and new caisson). That last one is the only potential bottleneck, with an up to 18-month process if triggered, but the four-year execution schedule has room for it (I contacted management on this point, and on several others, but as of today I have not received a response). Incentives are aligned across all parties, which makes it unlikely to become a problem.

Jurisdiction and community

NL ranks third among Canadian jurisdictions for mining investment in the Fraser Institute’s 2025 survey, and fourteenth globally. The regulatory framework is stable, the provincial government actively courts mining capital, and the region around the project has an unbroken mining tradition since the 1950s: gypsum for decades (still shipping today), and a limestone mine still operating. St. George’s is not a town meeting its first mining project.

Three stakeholders have formally voiced support: the Town of St. George’s, the Bay St. George’s Chamber of Commerce, and the First Nations Bands of St. George’s, Flat Bay, and Three Rivers. The Qalipu First Nation67 is still considering its support, but has raised no specific concerns. The project site already sits next to an active gypsum quarry, and Qalipu’s administrative base is approximately 70 km away. The probability of friction appears low.

Environmental profile

Credible ESG arguments are rare in mining, but Atlas ticks several boxes that make the defense unusually easy. The mine is designed to be an electric operation, powered by NL Hydro’s hydroelectricity at C$0.062/kWh. Projected Scope 1 emissions: 79 tonnes CO2 per year (approximately what four 4-person households in Newfoundland emit). No tailings, no chemical processing, and no diesel underground fleet. The project’s carbon footprint is a rounding error on a suburb. That helps explain why the environmental assessment approval was granted in less than two months, compared with approximately 1-1.5 years for other mining projects.

Sensitive-species on site? Only one issue has shown up in surveys so far. Bat acoustic monitoring picked up activity in July 2024, with follow-up results still pending. At this stage, that looks like routine procedural work, more likely a small cost line than a thesis risk. Black ash and raptor surveys turned up nothing. No known archaeological sites either.

Now the best “incentive” part: the projected economic return to the community is enormous: 170+ direct long-term jobs, nearly C$2.8 billion in tax revenue over the mine’s life, and active support for Memorial University’s critical minerals research. St. George’s is a rural community whose population declined 5.3% over five years and it is about to inherit a multi-generational employer.

Aligned incentives are rare in mining. It is one of the reasons even projects with exceptional numbers on paper, technically de-risked, stay undervalued for years. They die in the maze of permitting, opposing incentives, and community opposition. Atlas sits outside that maze. And yet it trades at a deeper discount than many projects stuck inside it.

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04. The Business Model

Compass Minerals, one of the biggest deicing salt producers in North America, owns and controls: mines, packaging plants, distribution centers, brand names, storage depots, vessels, barges, rail and trucking relationships, and direct contractual relationships with virtually every DOT and public-sector buyer East of the Mississippi. Morton Salt and Cargill have built the same end-to-end machine. They mine the salt, screen it, bag it, brand it, ship it, and sell it directly to the entity that will spread it on a road. These are fully integrated supply chains built over 60 to 130 years.

Atlas controls a planned mine project that is expected to start production in 2030.68

This section is an analysis of what that gap means.

One clarification upfront. As of the date of this report, Atlas has not signed a single binding commercial contract with any relevant counterparty. The key commercial relationships disclosed by management so far are non-binding MOUs (Memoranda of Understanding). Early works are underway on site, but remaining construction-phase permits, project debt, and equity gap funding are still ahead. First production is at least four years away under the schedule disclosed by management. This contractual posture is the normal state for a junior developer at this stage, and it is the starting point from which the rest of this section should be read.

The Product: One Feedstock, Several Commercial Formats

Atlas plans to sell essentially one feedstock: crushed rock salt for road deicing. The same raw material comes off the crusher, then gets separated into different specifications and formats depending on the sales channel, but not in equal proportions. Within the bulk road-salt segment, the UFS distinguishes two commercial specifications coming off the same crusher. Public road-salt tenders typically require the ASTM D632-12 standard.69 Commercial products sold through distributors demand tighter “Screened Mediums” specifications: the same 95% NaCl minimum, but lower moisture, narrower gradation, and fewer fines.70 The two streams would be separated at the processing plant: Atlas produces one product and screens it into commercial grades depending on which sales channel it feeds.

A smaller share could go to packaged consumer salt, sold through branded partners such as Scotwood Industries, the segment where Atlas could capture a meaningful piece of the approximately 6x markup that exists between bulk producer pricing and retail shelf pricing. A marginal residual goes to colored salt for specialty markets, irrelevant to this analysis and not contractually committed in any case.71

Where Atlas Plans to Sell

The planned 4.0 Mtpa production splits across four geographic destinations, each with its own logistics profile and pricing dynamics.

The U.S. East Coast represents 56% of planned volume and the bulk of the C$920M NPV. The UFS defines this market as ports along the U.S. East Coast from Maine down to Baltimore, plus inland states reaching as far west as Pennsylvania and West Virginia. This is the region where the 8-10 Mtpa structural import gap concentrates, and where Cargill’s permanent closure of Avery Island in 2022 removed another 2.5 Mtpa of domestic supply from the market. Realistically, 1.5 to 2.5 Mtpa could land somewhere along this coast, displacing the highest delivered-cost suppliers first: Chilean and Egyptian salt with multi-week ocean lead times, but also North American mines whose distance from the East Coast forces freight costs that Atlas’s geographic position simply does not carry.

Québec, at 15.5%, is the defensive line. The St. Lawrence corridor consumes an estimated 3.5 to 5 Mtpa every year, and for ten weeks each winter, Atlas would be one of the few nearby producers with waterborne access into the region while the Seaway is closed. As noted, the 15.5% allocation is not committed. But no new commercial infrastructure is needed to capture it: the corridor is already there, the buyers are already there, and the geography does the rest.

The Maritimes (Nova Scotia, New Brunswick, and Prince Edward Island) at 8.5%, is a smaller target, and a relatively standard one. Atlas would sell salt dockside at ports like Halifax or Saint John, and a local distribution company would handle unloading, storage, and delivery to the final customer. For those provinces, Atlas would become a nearby, reliable source they can tap in volume and during the season. For Atlas, it is a minor share of output with above-average margins. Geography, yet again, tilts the economics.

The 20% allocated to Spot Sales and Commercial is the most economically interesting line in the mix. It captures three distinct flows. First, emergency purchases by municipalities when their contracts run short (the Ontario 2026 dynamic, with spot prices at C$300/tonne). Second, ongoing sales through commercial distributors to private snow contractors, who get pushed to the back of the queue every time municipal demand spikes and end up paying multiples of normal bulk pricing. Third, the local Newfoundland market itself, approximately 0.3-0.35 Mtpa with no internal production, served by truck and short-haul vessel shipments directly to municipalities along the west coast. All three flows pay above tender pricing. And all three favour the producer who can ship year-round.

I’ll say it again: this is a planning allocation by design, and a deliberately conservative one. Atlas appears to want a larger spot-market allocation than the UFS assumes. As a shareholder, I would welcome that (more on that later).

How It Actually Sells: CIF, DAP, FOB

There are three commercial structures, depending on the destination. Each transfers risk and captures margin differently.

CIF (Cost, Insurance, Freight) is the standard structure for the bulk of U.S. East Coast shipments. Atlas would arrange and pay for ocean freight and insurance to the destination port, where a local distribution company manages unloading, storage, trucking to the salt depot, and final sale to the road-spreading entity. Atlas would carry the freight-cost exposure; the distributor would carry everything downstream. This is the dominant structure for the 56% U.S. East Coast allocation.

DAP (Delivered at Place) applies to the western Newfoundland market. Atlas would deliver all the way to the customer (typically a municipality) by truck or short-haul vessel depending on distance. Atlas would control the entire chain to final delivery, but the addressable market is small. Management has not named carriers or routes, but the economics point to contracted trucking rather than an owned fleet (at least in the early production years). At 0.3-0.35 Mtpa, the volume does not justify dedicated vehicle CapEx.

FOB (Free on Board) applies to buyers who arrange their own vessel at Turf Point and take title once the cargo is loaded. Atlas’s risk ends once the salt is loaded aboard the vessel. This is the simplest structure for Atlas operationally, but it can limit pricing power: the buyer’s negotiating leverage is highest when they control the vessel.

I hope you’ve been following closely, because this is where it gets important. Section 19.4.2 of the UFS:

The entire C$920M NPV runs on a uniform C$81.67 per tonne price on an FOB Turf Point basis, regardless of the commercial shipping terms. The assumption is simple and elegant. If anything goes wrong in the long-distance deicing salt chain (and plenty can), Atlas’s 2 km-to-port geography becomes structurally more valuable than the model assumes. Imported Chilean and Egyptian supply loses competitiveness first. Atlas keeps its relative position intact. The FOB-equivalent pricing assumption is therefore potentially a source of additional margin. Like the 288 Mt of additional Indicated Resources and 868 Mt of Inferred Resources earlier, I’m treating it as free upside. The setup still does not need it.

The Contracts

Section 19.5 of the NI 43-101 technical report captures the current situation perfectly:

“Atlas has had preliminary discussions with potential salt purchasers as well as salt brokers. Similarly, the Company has had preliminary discussions with logistics companies and port operators that would be involved in the process of delivering salt to destination markets. As of the effective date of the UFS, Atlas has not entered into any binding commercial contracts with respect to salt marketing or logistics.”

Nothing abnormal here. Early works on the mine have begun, production is at least four years away, and counterparties rarely commit to binding contracts that far ahead of execution. Atlas has already announced four non-binding MOUs (Memoranda of Understanding; statements of intent) with tier-one counterparties.

MOUs serve two purposes, depending on the counterparty: they can reduce the capital Atlas has to raise upfront, and they tell future lenders that a tier-one counterparty has already diligenced the file and stayed at the table. Take Sandvik. If that equipment MOU converts to binding vendor financing, Atlas could pay for the fleet out of post-production cash flow, not out of equity raised today at a depressed valuation. Each MOU has its own specifics, but the logic is the same: less potential dilution now and/or easier financing later.

Atlas currently has four such MOUs with major counterparties. Each is non-binding, but each is a potential milestone. Especially the first one.

Scotwood Industries, Commercial Offtake + Canadian JV (August 20, 2024)

Atlas signed the MOU thirteen months before the UFS was published. It bundles two things into one deal. First, a proposed strategic offtake: Atlas would supply bulk salt to the partnership. Second, a 50/50 joint venture: the JV packages that salt, brands it, and sells it into the Canadian retail market. A combined target of 1.25 to 1.5 Mtpa, with profits split equally after each side recovers its costs. The deal explicitly excludes bulk road deicing salt (the public-tender channel) and excludes the four Atlantic provinces (the market Atlas can reach on its own). With one important exception: Scotwood’s national Canadian retail accounts (think Walmart Canada, Home Depot Canada) can be supplied anywhere in the country, including the excluded provinces. Remember, this is the channel where the same salt can sell for several times the bulk price.

Why this matters.

Scotwood is the largest packaged retail deicing distributor in the United States: Home Depot, Walmart, big-box mass merchandisers, DIY chains, farm and home retailers, grocery chains, and others. When a distributor that size signs even a non-binding MOU with a junior pre-production developer, the file has passed a filter. Chase Wilson, Scotwood’s President, said so at signing:

“Being the largest distributor of packaged retail deicing salt in the United States we are very selective in choosing new business partners. If completed, we believe Atlas Salt’s long life underground salt project would make Atlas Salt an ideal long-term partner for us in Canada.”

Rick LaBelle, then CEO of Atlas Salt, was equally explicit about Atlas’s side of the logic:

“Since I joined the Company, I’ve been focused on opportunities in the retail market, where supply is more predictable, and margins are generally higher.”

This is where the UFS NPV stops being the full picture.

Every tonne in the C$920M NPV starts from a C$81.67 per tonne base price on an FOB Turf Point basis. SLR chose a single blended price across every destination and every product format, effectively anchored on bulk deicing economics (the lowest-margin channel in the deicing market). Walk into a Home Depot today and look at the shelf: a tonne of packaged deicing salt retails around C$500-600. The UFS prices essentially none of this differential.

Most of that retail spread won’t flow back to Atlas: retailer margin, distribution costs, packaging, and the 50/50 JV split with Scotwood all take their cut. What lands on Atlas’s income statement after those steps could be somewhere between C$60 and C$80 /t above the bulk base case (estimate),72 depending on cost structure and negotiation. At 1.5 Mtpa through Scotwood, that’s C$90 to C$120 million of incremental annual pre-tax contribution attributable to Atlas not captured in the NPV. Discounted at 8%, with no salt-price escalation, over the 24-year mine life, the C$60-80/t uplift on 1.5 Mtpa would imply approximately C$945 million to C$1.26 billion of pre-tax present value.

After taxes and leakage, the incremental present value would land closer to C$630 million to C$840 million.

Let me reframe this. With up to 37.5% of annual production routed through packaged/retail-related channels, the incremental value alone could approach the entire NPV built on bulk pricing. Recalculating the NPV with 37.5% flowing through the packaged/retail-related channel (the high end of what the MOU contemplates) would lift project value by 68% to 91%. Cut that estimate in half as a safety margin and the uplift still lands between 34% and 45%. Just from Atlas selling its salt in bags through a partnership. Back-of-envelope, but the direction is unambiguous. And the company trades at a P/NPV of approximately 0.13x against a project NPV that does not count any of it.

That was the picture at 1.25-1.5 Mtpa. Then the project scaled.

The 2023 Feasibility Study modeled 2.5 Mtpa. The 2025 UFS modeled 4.0 Mtpa. Yet the Scotwood target volume did not move. Yet. Nolan Peterson, who took over from LaBelle in June 2025, addressed this directly:

“For Scotwood, that tonnage was set in the original feasibility study, remember when the project was much smaller. So there is the opportunity to expand that offtake to encompass the larger project production, and we are in discussions with Scotwood and other offtake partners about taking the remainder.”

Management has begun the conversation to expand that offtake, and Peterson’s phrasing (“Scotwood and other offtake partners”) telegraphs that the search has widened. If the binding arrangement eventually routes closer to 50% of nameplate through higher-margin packaged/retail-related channels, the economics per tonne attributable to Atlas could reshape the project entirely.

Peterson added one more line worth hearing:

“It does not mean that we need a partnership like this. We can always develop those relationships ourselves and market the salt ourselves, but it’s very helpful. It’s one less thing for us as miners that are familiar with mining and developing projects that we have to worry about.”

The CEO makes the point explicit: the MOU is not on the critical path. Atlas can walk away from it if the terms do not evolve in its favor. But the shortcut is worth taking, in my opinion, even on less favorable terms. Replicating Scotwood’s retail chain would take Atlas years and a lot of capital, starting after first production, with management bandwidth it does not have today and won’t have at the start of production. Owning the full margin sounds better on a slide, but getting half of it, years earlier, without the CapEx, is probably the better trade. At least through the first debt-repayment window, until cash flow stabilizes. In any case, senior lenders would probably reject a go-it-alone retail buildout. When project lenders underwrite a project, they do it against a specific base case, and they are usually reluctant to accept deviations, especially ones that introduce that much commercial risk.

The NPV holds up fine if Scotwood goes nowhere. The stock could reprice materially if it does. That’s the kind of asymmetry a shareholder wants to own. It shows up, to a smaller degree, in the three MOUs that follow.

Sandvik Mining, Equipment + Vendor Financing (September 2024, expanded February 13, 2026)

The Sandvik MOU, expanded in February 2026, is also the kind of thing we want to see as shareholders. The expanded scope raised the total estimated commercial value from C$73 million to up to approximately C$132 million, covering both initial construction and the multi-year ramp-up to 4.0 Mtpa. Sandvik would supply underground mobile mining equipment, technology, and associated services.73 Sandvik is also Atlas’s Integrated Project Delivery (IPD) partner, which means it would be embedded in the mine design, automation planning, and long-term maintenance architecture from the start.

The financing piece is critical (and easy to misread). It contemplates vendor-supported financing for Sandvik capital equipment within the C$132M commercial scope, potentially less than the full amount, subject to “customary due diligence, receipt of Sandvik’s required internal approvals, and negotiation and execution of the definitive agreements.” It is an expression of intent from a tier-one global equipment supplier that, if converted, could materially reduce Atlas’s upfront cash equipment outlay. If not, Atlas would need to find another partner, or fund the equipment from project debt or equity. We come back to this in the financing section.

Hatch Ltd., Lead Engineering & IPD Partner (November 12, 2025)

Hatch is one of the world’s largest engineering firms (10,000 staff, 150+ countries, over seven decades of engineering experience and a track record in underground soft-rock mines), with an established Newfoundland and Labrador presence. The MOU establishes Hatch as Lead Engineering Partner and IPD Partner. In plain English: Hatch would integrate all engineering disciplines under a single delivery framework, from detailed design through construction support.

The value of the Hatch relationship to Atlas is reputational as much as technical. A tier-one engineering firm putting its name on the project would signal to lenders and equity investors that the technical foundation is being built to institutional standards. For a junior developer with limited internal engineering depth, this matters.

Continental Conveyor, Material Handling, IPD Partner (October 29, 2025)

This is the most operationally specific of the four. Continental would design and supply the complete material handling conveyor package: 28 belt conveyors and head chutes spanning underground crushing, surface storage, the 2-kilometer overland conveyor to Turf Point, and the port loading systems. The equipment would be supported by Continental’s Canadian facilities in Thetford Mines, Quebec, and Napanee, Ontario.

The conveyor system is a critical-path item for the project (without it, neither the mine-to-surface flow nor the surface-to-port flow exists), so lining up a credible Canadian supplier early is operationally sensible.

The four MOUs are straightforward:

• Scotwood Industries: Packaged retail offtake + 50/50 Canadian JV. 1.25-1.5 Mtpa. No vendor financing.

• Sandvik Mining: Underground mobile mining equipment, technology, and services (commercial scope up to C$132M). Vendor financing contemplated.

• Hatch Ltd.: Lead Engineering Partner and IPD Partner. No vendor financing.

• Continental Conveyor: 28 belt conveyors, mine-to-port. No vendor financing disclosed.

Reading the four MOUs together leads to three remarks.

First, Atlas has assembled four tier-one counterparties, and Sandvik alone could address up to approximately 22% of the C$589.1 million initial capital cost if signed. This is important for a reason that sits at the core of this thesis: Atlas is, in my view, clearly undervalued today. As long as that discount to intrinsic value persists, minimizing dilution is directly aligned with shareholder interests. Binding contracts are what we want, but at the right time. For now, every MOU signed with a credible partner is a small incremental positive.

Second, the pace tells a story. The MOUs accelerated once the permits came through. Early Works commenced in February 2026 and will likely run at least through year-end. That gives Atlas time to secure additional MOUs and to begin converting project-delivery agreements (Hatch and Continental) into binding contracts.

Third, the four MOUs cover a range of construction-side workstreams, but on the production side, coverage is thin. Only Scotwood addresses offtake, targeting 31-37.5% of planned volume. At least part of the remaining 62.5-69% is actively in play: Peterson confirmed that discussions are underway with Scotwood to expand the original volume and with other retail offtake partners to cover additional production. We are still four years from first production, so there is runway. For the bulk side, finding buyers is the easy part. The market already imports because North American mines can’t produce enough. If Atlas shows up with a year-round source three days from Boston, the sale will probably write itself. The real prize would be a binding retail offtake, even on a limited volume: it would mean Atlas has locked in a channel where every tonne ships at margins not reflected in the current NPV.

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05. Management and Alignment

In junior mining, a perfect deposit mismanaged becomes another orphan on the Lassonde curve. Atlas’s rock looks exceptional. Whether the team can match it matters more than any number in this deep dive.

I look at management in three steps: who the people are, what aligns them with shareholders, and what they have already delivered.

The Operators

Look at the Atlas team and you see two generations of mining executives stitched together on purpose: the older generation built the company, the younger generation is going to build the mine. Knowing where one hands off to the other tells you more about Atlas than any single resume.

Patrick Laracy, The Founder Who Stayed

Start with Laracy, because everything at Atlas eventually routes back to him. He is the founder of Vulcan Minerals (1995), the founder of what became Atlas Salt (2011), and the current Chairman of Atlas Salt and longtime head of Vulcan Minerals. He holds an LL.B. from the University of Calgary and a B.Sc. Hons. in geology from Memorial University. It is a rare combination of lawyer and P.Geo in one person, which means he can speak both the technical and legal languages of the project without translation. Over thirty years, he has leveraged more than C$100M of high-risk exploration spending into actual deposits in the ground, most of it in Newfoundland.

The job title understates what he does. He’s a node in the province’s mining establishment: Vice-Chairman of Mining Industry NL, director of the Newfoundland & Labrador Chamber of Mineral Resources, past president of the NL Explorationists Association. When the province thinks about mining, it thinks about people like him. When it thinks about rock salt specifically, there are not many people ahead of him in the queue.

Remember the EA registration that cleared the provincial process in seven weeks. The file was clean, yes. But a clean file submitted by a man who has been part of Newfoundland’s mining regulatory conversation for three decades was always more likely to get a fair hearing, fast. Those seven weeks are also a byproduct of Laracy’s network.

Rowland Howe, The Man Who Knows the Competition

Howe is the single most overlooked name on the deck, and in my opinion, one I think Atlas should put front and center. The investor presentation lists him as “Director” and “Salt industry veteran.” That word is doing a lot of work.

From 1995 to 2011, Rowland Howe ran Goderich (yes, the same mine I’ve been referencing since the first section). He inherited it, scaled it, and took it from 3.5 Mtpa to a record 7.5 Mtpa, making it the largest underground salt mine in the world.74 He stayed another six years in strategic engineering and project roles before retiring from Compass in 2016.75

In 2021, Laracy brought him out of retirement to serve as President of Atlas. Howe led the feasibility work through its critical years, then stepped back as the project crossed into execution. He is now a director, still close to the project, and still serves as President of the Goderich Port Management Corporation.

This is the person who knows Goderich’s cost structure, its labor dynamics, its vessel logistics, its failure modes, and its customer relationships from the inside, over more than two decades. For a would-be competitor to Goderich to recruit him is an information advantage that is difficult to quantify. But let me try anyway: a man who spent sixteen years running the industry’s flagship mine does not come out of retirement to sit on a board for a project he thinks is mediocre.

There’s an episode in the middle of that history worth naming. Between Howe stepping back and Peterson stepping in, Atlas had another CEO: Rick LaBelle, appointed in August 2023, departed in March 2025 by “mutual agreement,” after nineteen months. LaBelle came from Dumas Mining, where he had been President & CEO from 2017 to 2022; the same Dumas where Andrew Smith, Atlas’s current Project Director, had run the PMO. Smith arrived during that period and stayed when LaBelle left.

As usual with these exits, the full story never made it into the press release. You can read the departure positively or negatively; I won’t speculate. What matters for the thesis is the observable fact: the company has already survived one CEO transition without losing its operating bench. That helps bound the succession risk around Peterson. Speaking of which.

Nolan Peterson, The Executor

The ideal CEO for Atlas at this stage would be someone who has already built and brought a similar salt mine in North America into production. That person probably does not exist, because no comparable salt mine has been built on the continent in decades. The next best thing is someone who has crossed the feasibility-to-production bridge on other mines, understands both the engineering and the financing, and knows what goes wrong in the middle.

Peterson arrived as CEO and director in June 2025. MBA, CFA, P.Eng., PMP, twenty years across finance, operations, and mine development. On paper, the boxes are checked. Now in practice.

Peterson spent seven years at New Gold, straddling the line between engineering and corporate finance. He started on the technical side as Project Engineer on New Afton, a gold-copper underground mine in British Columbia that he helped construct and commission into production. From there, he helped advance both the Rainy River and Blackwater projects through their development stages. Then he crossed to the other side of the house: he joined New Gold’s finance group and led financial planning and analysis for the company, running the numbers behind the same kind of projects he had helped build.76

After New Gold, he joined TMAC Resources in senior finance management, working on the Hope Bay gold project in Nunavut until Agnico Eagle acquired it. Then he took the CEO seat at World Copper in April 2021, a PEA-stage77 copper developer with assets in Chile and Arizona. He grew the story, advanced the technical work, then resigned in November 2023 to “pursue other opportunities”. Nineteen months later, he surfaced at Atlas.

Since arriving in June 2025, Peterson has cleared the year-one checklist fast: the UFS delivered, three construction-side MOUs signed or expanded (Hatch, Continental, expanded Sandvik), C$8.7M raised, OTCQX uplisting secured (higher-tier U.S. OTC market, broader institutional visibility and liquidity for U.S.-based investors), and Early Works physically underway on site. No binding project-financing, offtake, or major construction contracts yet. The next milestones to watch are interim funding for early works, then the definitive project-financing package.

The Construction Bench

Below Peterson sits a team assembled over the last two years, with backgrounds that say one thing: we are here to build.

Robert Booth (VP Engineering & Construction): C$1.5B+ in mine builds at Newmont and Hudbay. Andrew Smith (Project Director & GM): C$500M+ in international mine-building contracts at Dumas. Jeffrey Kilborn (CFO): twenty years in mining finance, former Director & CFO of Canadian Gold Corp. And at the board level, Bob Kelly, appointed to the board in March 2025: 40 years in senior mining roles, construction-management work at Voisey’s Bay Nickel, including the hydromet demonstration plant, GM of Teck’s Duck Pond Mine in central Newfoundland, then VP responsible for health and safety across Teck’s operating sites, projects, exploration activities, and office locations. Kelly is the one who has actually run a producing mine in this province, and he’s a past President of the Canadian Institute of Mining’s Newfoundland Branch.

There is no exploration geologist running the operating team anymore. The people with those skills have done their job. What is left is a builder’s team staffed for a builder’s problem, even if the stock still trades like an exploration-stage one.

The Cap Table

The table below gives the starting denominator: 110.7 million basic shares, about 119.6 million fully diluted shares. The old warrant stack is gone; 2.85 million warrants at C$2.40 expired in 2025. What remains is a small broker-warrant line and a normal stock-comp pool for a junior developer entering the expensive part of the curve.

The existing dilution overhang is visible, but largely manageable. Options, RSUs, PSUs, and DSUs represent approximately 7.5% of the basic share count. Add broker warrants, and you get about 8%. This is almost nothing compared to the dilution risk during the construction financing phase.

On February 12, 2026, directors exercised 2.6 million options, and Atlas granted 3.15 million new options at C$0.98, including 1.6 million to directors according to the 2025 MD&A. Yes, the old options became shares, Atlas received cash, and the option pool increased by only 550,000 net. But this is basic retention, the company disclosed no link to project financing, construction start, first salt, or CapEx discipline. That is not catastrophic, the real incentive is still share ownership. But as a shareholder, I cannot see it as good compensation design, especially when the CEO still owns relatively little stock and the company is about to ask the market for construction capital.

Vulcan Minerals remains the anchor shareholder, with about 27.0% of Atlas at year-end 2025. Vulcan is led by Patrick Laracy and remains the main vehicle through which his influence is exercised. Laracy also holds approximately 5.3 million Atlas shares personally and through Triassic Properties. Put together, Vulcan’s stake and Laracy’s direct/related Atlas ownership represent around one-third of Atlas on a basic-share basis. Atlas has public shareholders, institutions, a board, and a new CEO, but Laracy is still the gravity in the room.

The rest of the board adds another layer of alignment. Edison holds about 1.3 million shares through Dollard Investments. Noel holds about 1.1 million. Howe owns 150,000 shares, plus his incentive package from his time as President. Peterson’s starting equity position was small, but he has bought approximately 50,000 shares in the market in 2026. Also worth noting: in the SEDI window I reviewed, over the last twelve months, I saw only insider purchases filed.

The structure is aligned, but still not entirely clean. Three of six directors (Laracy, Edison, and Noel) also sit on the Vulcan side of the table. That overlap is natural: Atlas came out of Vulcan, and the mineral rights, royalty, relationships, and institutional memory all run through the same corridor. But when the board votes on anything touching Vulcan’s interests, half the table has a seat on both sides.

The counterweight is Howe, Peterson, and Kelly. Howe knows the salt industry better than anyone else in the room, Peterson is the execution CEO, and Kelly brings Newfoundland operating credibility. My read is simple: Laracy controls Atlas in the practical sense. Through Vulcan, through his personal stake, through the board’s history, and through thirty years of weight in Newfoundland’s mining ecosystem. That is powerful when your interests are aligned with his. Less so when they are not. There is one specific case where this could matter: a potential M&A scenario. We will come back to it later.

The October 2025 financing added one powerful signal: Atlas brought in its first strategic investor. Management has not named the party, only described it as an investor whose interest in Atlas and Great Atlantic “aligns with its long-term strategic objectives.” I would not turn that into a takeover thesis, but someone with strategic interest wrote a cheque before project financing was in place. My take is that the strategic investor is more likely someone with a direct interest in securing future tonnes than a mine operator trying to fold Great Atlantic into its existing logistics network. Geography matters here, again. For most incumbent producers, Atlas is not an obvious plug-and-play asset, it is a new Atlantic supply point with its own route to market. The “obvious” candidate is Scotwood, given the MOU already signed with Atlas, but its strategic logic of owning equity is less obvious. The second bucket would be an East Coast port operator/distributor. Eastern Salt is the default name that comes to mind, although there are other possible candidates. Larger salt groups such as Kissner or Stone Canyon are also possible, especially if they want an early position ahead of a future M&A scenario, but a C$8.7 million LIFE financing would be a very small move for them. Possible, just not my base case at the moment.

Atlas has the right people, and enough ownership for alignment to matter. But Vulcan sits everywhere. That is acceptable while the goal is simple: get the mine built. It becomes less comfortable when Vulcan’s interests diverge from those of minority shareholders.

There is one case where this matters. Here it is.

The Royalty

In 2012, when Laracy spun the salt and industrial minerals business out of Vulcan into what was then called Red Moon Potash (later renamed Atlas Salt), the mineral licences were transferred from Vulcan to the new entity. The consideration came in two forms: common shares in the new company and a 3% Net Production Royalty (NPR) payable on production from the mineral licences, calculated on Atlas’s gross revenue less port charges, processing costs, and the NL Mining Tax. That was the price Atlas paid to get its own assets.

SLR has already modeled this royalty in the C$920M NPV, so it does not change the headline number. But it changes who receives each dollar, and the distribution of value is more lopsided than first appears.

Back-of-the-envelope, using the royalty formula in the UFS: the royalty base is approximately C$8.86B over the initial 24.25-year mine plan, or about C$365M per operating year on average. At 3%, that gives Vulcan about C$266M of undiscounted royalty cash flow before Vulcan-level tax. Discounted at 8% from the UFS effective date, with the four-year pre-production period and the UFS production ramp, the stream is worth about C$80M. That is just under 9% of Atlas’s C$920M after-tax project NPV.

But the royalty may have a ceiling, and that ceiling may be Scotwood. If Atlas signs a definitive agreement and the JV operates as contemplated, Atlas would, under the UFS pricing assumption, sell its salt FOB Turf Point at around C$82 per tonne. The JV would package it, distribute it, and sell it at retail. After costs, profits would be split 50/50 between Atlas and Scotwood. Atlas’s share could potentially be classified as investment income from the joint venture, not as revenue from the sale of salt. If so, it could fall outside the royalty base, assuming the final royalty and JV documents do not contain a look-through mechanism. In other words, every tonne routed through Scotwood, or any similar structure, could leave more value with Atlas shareholders than a tonne sold directly into the market.

What Laracy’s Alignment Means for Shareholders

Most of the time, Vulcan’s 27% stake and Laracy’s direct and related 4.8% stake mean his interests are aligned with shareholders’ interests. When Atlas re-rates, his net worth rises in lockstep. But in three specific cases, the interests can diverge.

Financing decisions. Vulcan has been diluted from 29.79% in 2023 to 27.02% at year-end 2025, and will dilute further through construction equity. Every dollar of equity Atlas raises from someone other than Vulcan is a dollar of dilution to his largest asset. His economic incentive is therefore to raise at the highest possible price, as late as possible, and only what is needed.

Acquisition scenarios. If a salt major or private equity player tried to buy Atlas, Laracy has two interests to weigh. Atlas shareholders want the highest takeout price per share. Vulcan wants that too, but also wants to preserve the 3% NPR through any change of control. Laracy’s board seat means the royalty won’t be traded away in a rush. Whether that protects Vulcan at our expense depends on whether preserving the NPR compresses the takeout premium an acquirer is willing to pay.

Spin-offs. In 2022, Atlas spun off Triple Point Resources, which holds Fischell’s Brook salt dome and other mineral claims 15 km south of Great Atlantic. Howe is currently listed by Triple Point as a Special Advisor. The spin-off was marketed as a bonus for Atlas shareholders, and maybe it is. The mechanics, however, follow a recognizable pattern: assets that once sat inside Atlas now sit in a separate entity, with its own cap table, its own management and advisers (Howe), and its own future financings that Atlas shareholders will not automatically participate in. Atlas retains a 14.4% equity stake in Triple Point, but no board representation. The “main” other assets still inside Atlas are the Ace Gypsum Project (historical gypsum mines at Flat Bay, 3 km southwest of Great Atlantic) and the Black Bay Nepheline Syenite Property (a surface occurrence of nepheline syenite in southern Labrador, with historical metallurgical work and minimal 2025 spend). Neither is material to the thesis.

The Net Read

This ownership-and-royalty structure is a double-edged sword, except one edge is razor-sharp and the other is dull.

The sharp edge cuts in shareholders’ favor. Laracy holds approximately a third of Atlas through Vulcan and personal/related holdings. Every re-rating flows directly into his balance sheet. Insider and related-party ownership exceeds 40%. Howe has his salt-industry reputation on the line in a way a detached board director does not. These people are highly incentivized to make Atlas work.

The dull edge comes after Atlas succeeds. The NPR is a life-of-licence claim on value, already netted out of the C$920M NPV and worth about 9% of pre-royalty modeled project value. The board has a Vulcan tilt (three of six directors sit on both boards), so a change-of-control scenario could be negotiated around the royalty as much as around equity.

This is a common setup in junior mining. You get a management team and a board that are genuinely strong for a company this size, and the structure is part of how they get paid for it: the royalty, the overlap, and the concentrated ownership. That’s the price of having Laracy’s network, Howe’s salt expertise, and Peterson’s execution experience.

06. A Quick Look at the Financial Statements

Before opening the statements, one accounting point needs to be killed immediately.

Great Atlantic sits on Atlas’s balance sheet inside C$16.7 million of mineral exploration and evaluation assets. The UFS gives the project a C$920 million after-tax NPV at 8%. Those two numbers look incompatible only if you ask accounting to do valuation work, which you should not do for a junior miner.

The C$16.7 million is mostly the accumulated cost trail of getting the asset portfolio to this point (licenses, geology, feasibility work, engineering, etc.). It generally goes up when Atlas spends more money on the assets, but not when the salt market tightens or when the UFS points to a stronger economic case.

So the financial statements only tell us how clean the balance sheet is, where the cash went, and how much runway Atlas has before the real financing decision arrives.

The Wrong Place to Look for Value

The income statement is the least useful page in Atlas’s accounts.

There is no producing mine yet, no operating revenue, and therefore no margin to analyze. Atlas recorded a net loss of C$3.71 million in 2025, almost identical to the C$3.68 million loss reported in 2024. It may look stable, but it is mostly irrelevant. At this stage, the P&L mostly measures the corporate cost of keeping a listed developer alive while the project moves from feasibility study toward production.

A few items are still worth pulling out:

• Share-based compensation fell sharply, but that was mainly an equity-award cancellation/reversal effect tied to former executives and a former director.

• The C$776,644 gain on Triple Point came from Atlas losing significant influence after Triple Point’s financing and no longer accounting for it as an “associate” under the equity method, which created an accounting gain without bringing any cash into the business.

• On the cost side, the “office, consulting fees, and other” line increased, but the MD&A says nearly C$800,000 of that increase related to financing expenses (the cost of trying to assemble the next layer of capital).

• Management and subcontractor fees rose as well, largely because Atlas paid a termination payment to a former executive.

So yes, Atlas lost money again in 2025. That is the burden of every pre-revenue developer. The balance sheet is already a little more interesting.

Balance Sheet Snapshot

At year-end 2025, Atlas had C$26.3 million of total assets, C$6.0 million of cash, C$6.6 million of positive working capital, and C$1.8 million of total liabilities. There is no project debt, no construction facility, and no off-balance-sheet arrangements. The liabilities are mostly trade payables, a small Business Development Bank of Canada (BDC) loan, a light-duty vehicle loan, a conditionally repayable Atlantic Canada Opportunities Agency (ACOA) contribution whose repayment begins after commercial production, and an asset retirement obligation tied to Ace Gypsum. In other words, nothing that changes the Great Atlantic financing equation.

The company is therefore still simple: Great Atlantic + cash + a few assets around the edges. Those edges are worth identifying, because they can otherwise make Atlas look more diversified than it really is.

The old Fischell’s Brook Salt Dome property was spun out into Triple Point in 2022. Atlas still owns a residual stake, valued at C$1.37 million at year-end, but its ownership fell to about 14.4% after Triple Point’s 2025 financing, and Atlas no longer accounts for it as an associate. Strategically, that asset has left the building.

The gypsum assets are small. Atlas owns the Flat Bay / Ace gypsum assets near St. George’s, including three mining leases, cumulative gypsum sales/proceeds of C$2.1 million, and Atlas has an agreement with Turf Point Resources (the same port group involved in the future rock salt logistics) under which gypsum or anhydrite may be mined and exported in 2026, with Atlas receiving a trivial per-tonne royalty.

Black Bay Nepheline is even further out. Atlas spent C$15,078 on the project in 2025, mentions “encouraging” historical metallurgy, and intends to complete additional work in 2026. That is option value in the strictest sense: present in the filings but absent from the investment case. Bay St. George General is smaller still, with C$48,239 of costs incurred to date and nothing spent in 2025.

So far, none of this does much for the thesis. The same cannot be said of the cash analysis.

The Cash Question

Atlas raised money in 2025 and still ended the year with less cash than it started with. Welcome to the junior mining world.

Cash went from C$8.0 million to C$6.0 million. During the same year, the company raised C$8.6 million in cash through an equity financing, paid C$0.9 million of issuance costs, recorded C$0.6 million of conditionally repayable ACOA financing on the cash-flow statement, and still ended the year with C$2.1 million less cash. The financing basically covered the year, but the split gives us the useful information.

The investing line is the cleanest one. Atlas spent C$4.7 million in cash on mineral exploration and evaluation assets, and the carrying value of those assets increased from C$11.8 million to C$16.7 million. That is the part of the burn shareholders should want to see: money leaving the bank account and showing up in the project. I have seen too many junior miners slowly burn cash into another corporate appendix.

The operating line is less flattering. C$5.3 million of operating cash burn looks high for a company with no revenue. But it is also a dirty number. It includes: the cost of being public, a management transition, preparing a financing package, and cleaning up working capital. Prepaid expenses increased by C$0.46 million, trade payables and accrued liabilities fell by C$0.77 million, and the income statement itself contains non-cash noise from Triple Point and share-based compensation.

So saying “Atlas just burned C$10 million” is lazy at best. In 2025, the burn split into two buckets. Approximately half went into the asset, while the other half paid for the corporate and financing machinery required to move that asset toward construction.

That is what I want to see as a shareholder. A developer can spend very little and look disciplined while the project goes nowhere. Atlas spent real money. Some of it advanced Great Atlantic. Some of it was the toll paid to reach the next capital event.

The Next Step

C$6 million of cash at year-end left Atlas enough room to keep the file moving, but it does not build a mine.

This is why the going-concern language matters, but only if it is read properly. Management prepared the accounts on a going-concern basis, and the auditor did not include a material-uncertainty paragraph. That does not underwrite the future financing of the mine, or even the future salt tonnes themselves. It only says: Atlas has no revenue, burns cash, and had enough liquidity at year-end to keep operating for now. A perfect example of the difference between accounting reality and (economic) reality.

Same with the impairment work. MNP (the auditor) treated the assessment of impairment indicators for the C$16.7 million of mineral exploration and evaluation assets as a key audit matter, and no impairment indicators were identified. Fine. It removes a potential accounting red flag, one that was already obvious to anyone who did the work. But again, it does not bring the C$920 million after-tax NPV8 onto the balance sheet.

One post-year-end event is worth noting. On February 12, 2026, directors exercised 2.6 million stock options, adding cash to the balance sheet. The proceeds were not disclosed, but the year-end option table gives us a decent range. Based on the year-end option table, applying a C$0.79-0.89 weighted-average exercise-price range to 2.6 million exercised options would imply approximately C$2.0-2.3 million of cash, with the upper end probably the better proxy since the exercised options had to be exercisable. For simplicity, I assume the option-exercise proceeds have roughly offset the cash spent since year-end. That leaves Atlas with something close to C$6 million of cash in my current working estimate.

Audited statements make development stories look bad by nature. That is normal, that is their job, and probably for the better. The most positive thing they tell us is that Atlas is clean enough to keep moving for now, but they tell us nothing about how the mine gets financed.

That is the next question.

07. The Financing

No revenue, approximately C$6 million in cash, and hundreds of millions to raise or arrange over four years before the first tonne ships.

How Atlas closes that gap is the single most important question between here and production. It will shape what the existing shareholder actually owns in 2030.

Start with the cash need.

What Atlas needs to fund

Initial CapEx is C$589 million. That’s what SLR engineered and what every investor deck shows. But it is not the full amount of cash Atlas will have to fund between today and the first tonne is sold. Two categories sit at least partially outside the CapEx envelope:

1. Corporate overhead: C$12-16M. This is the cost of running a listed developer for another four years: corporate salaries, audit, listing fees, board, investor relations, etc. Atlas’s 2025 operating cash burn was C$5.3M, but that is too dirty to use as a clean run-rate: it includes management transition costs, financing expenses, and working-capital movements. A normalized figure closer to C$3-4M per year is more defensible. SLR covers approximately C$4.8M of this inside the CapEx envelope as “Corporate Costs,” but I will leave that buffer untouched. It can absorb slippage, extra advisory work, or the usual small costs that never look material until they aggregate. Four years of normalized overhead lands at C$12-16M outside the UFS capital estimate.

2. Working capital: C$10-20M. SLR explicitly excludes this from the CapEx estimate, and the UFS cash-flow schedule does not show a working-capital build either. It is the cash tied up in accounts receivable from customers who pay 30-45 days after delivery, finished product inventory, and operating consumables, net of accounts payable to suppliers. For a mine shipping 1.6 Mt in Year 1, or approximately C$131M of revenue at the Q3 2025 base price, C$15M as a central estimate is a standard order of magnitude. That C$15M should be recoverable at mine closure, but it has to be there as operations start to ramp.

Total funding need before financing costs: range of C$611-C$625M range. I use C$625M for safety.

Financing costs come on top of that, but they’re mechanically linked to how the financing gets structured. To size those, I need to lay out the debt architecture itself.

The Debt Architecture

The rock salt market and Great Atlantic’s features partly simplify the problem:

• 24 years of relatively predictable cash flows. The price of salt rises gently year over year on average, in contrast to gold or even copper, whose prices fluctuate far more.

• An essential commodity with contractable demand.

• Low, stable OpEx. C$28/t modeled LOM operating cost, with no metallurgical processing plant, no tailings, and a simple product.

These three features can unlock capital sources many junior miners can’t touch: infrastructure banks, export credit agencies, and even sovereign wealth funds. These lenders can look at Atlas as a quasi-infrastructure asset with contractable cash flows. Atlas will be financed. The question is how and at what price.

To that end, Atlas appointed Endeavour Financial (a London-based natural-resources financial advisor that has raised over US$4 billion in junior mining debt since 2003) as project finance advisor in December 2024. Endeavour has assembled the lender package: marketability of the salt, engineering, environmental and social diligence, and the UFS model. It is a single due diligence package sent to potential lenders, like a mortgage broker distributing one complete file to the market.78 Since then, Atlas has obtained two Letters of Interest (LOI) in hand from potential debt financiers, including export credit agencies. Nothing new here, the playbook already exists. Nouveau Monde Graphite secured a US$335M senior project-debt commitment letter;79 Canada Nickel, Torngat, Defense Metals, etc., show the same direction of travel80: Canadian resource developers are increasingly using EDC, CIB, ECAs, and strategic/public lenders to bridge the gap between feasibility and construction.

Nothing new, but nothing simple. Debt is a stack of layers, and each layer sits at a different level of risk and pays a different coupon.

Here’s how this capital stack could be structured, according to the CEO:

“60% of our financing [initial CapEx] needs from senior secured lending [...] When we figure that out, then we layer in the subordinate debt, 10 to 20% potentially [...] Also, the possibility of government support, and then of course the traditional equity angle.”

Three sentences that hide a lot of machinery. Let me unpack each layer.

1. Senior secured debt: about 60% of initial CapEx. First lien on the mine’s assets. The lenders would be specialized commercial lenders: they bank airports, power plants, ports, etc., and would be looking at Atlas the same way. Rates typically fall in the 6-8% range.81 Endeavour has been arranging this since December 2024. A common structure in these facilities is to roll the construction-period interest into the loan itself: instead of paying interest in cash during the four years when the mine generates no revenue, Atlas borrows the interest on top of the principal. Importantly, this does not necessarily increase the upfront equity cheque Atlas has to raise. The interest tranche can be structured inside the senior facility itself. It just enlarges the principal Atlas will repay once production begins.

2. Subordinate debt: 10-20% of the package. Second-lien or structurally junior capital, so it gets paid after senior lenders in a liquidation, which means it costs more. A lot more, rates are typically 10-15%. Debt is often structured as PIK (Payment-In-Kind) during construction, meaning interest is added to the principal rather than being paid in cash (with no drain on Atlas’s treasury until production). The natural providers would be resource credit funds that have seen every configuration of this structure: Orion Mine Finance, Nebari, Sprott Resource Lending.

3. Vendor financing: C$132M contemplated under the Sandvik MOU (potentially more). Sandvik signed an expanded MOU in February 2026, covering equipment and services through construction and ramp-up. The financing would likely be tied to Sandvik-supplied equipment, but the exact terms are not disclosed. This is the most clearly defined tranche of Atlas’s stack, but still a non-binding MOU.

Regarding the government support Peterson mentioned, I haven’t found anything concrete. Since I can’t quantify either the probability or the funding itself, I’m setting it aside. But I would be surprised if discussions were not already underway. If the government does end up providing construction financing, it would be really good news (as long as it is not the only lender in the room): interest rates would likely be low, and covenants could be lighter.82

Finally, we have all the axioms we need. We can now do the math.

The Cost of Financing

There’s no free lunch, so you have to pay the people who help you raise the debt and the equity. In the model, I assume senior debt fees of 1-3% of the facility size, subordinated-debt fees of 2.5-7%, equity issuance fees of 5-7%, and separate advisory/legal/closing costs of 1.5-3%. The exact figure depends on the equity residual, which depends on the total funds needed, which depends on the fees. But the final reality is unchanged: financing costs will be the largest cost item outside the UFS, by far. Every assumption and calculation is detailed in the DCF at the end and reflected in the valuation section.

There’s also a structural constraint: senior lenders control what can sit below them. They impose a set of financial covenants that govern how the rest of the financing can be structured:

• Debt Service Coverage Ratio (DSCR). The ratio of cash flow available for debt service to scheduled debt service, commonly around 1.3x to 1.5x for contracted or lower-risk projects,83 with higher requirements when merchant or completion risk is higher. Depending on the facility, the test may apply to senior debt service only or to total debt service. Either way, every additional dollar of cash-pay subordinated debt tightens the equation.

• Loan Life Coverage Ratio (LLCR). The NPV of future cash flows available for debt service over the loan life, divided by the relevant debt balance. Typically required at 1.5x to 2.0x.84 It is a longer-horizon coverage test used alongside DSCR. Same logic: more debt in the stack shrinks this ratio.

• Gearing ratio. The ratio of total debt to total project capital. Usually capped at 70-80% for bankable infrastructure-like projects.85 Above that, the senior lenders can make closing very difficult.

These covenants are contractual: if Atlas tries to add subordinated debt that would push the DSCR below the threshold or the gearing above the cap, the senior lenders can use the intercreditor framework to block or condition the additional layer.

Peterson has said that resource funds have indicated they could push total debt to 70-80% via subordinate layers (vs. 60% senior), implying 10-20% of initial CapEx subordinate on top of the senior facility. The high end of that range is probably out of reach: the senior covenants (DSCR, LLCR, gearing) tighten as subordinate debt stacks up, and pushing to 20% would likely breach one of them. In my opinion, the realistic range is closer to 10-15% of the initial CapEx.

Fortunately for shareholders, Sandvik is different. Vendor financing is usually secured against the equipment itself, rather than sitting as another pure project-finance layer against the same collateral package. Depending on the structure, senior lenders may treat it as permitted equipment financing rather than standard project debt, but they will still care about the rest (repayment burden, liens, intercreditor terms, and cash-flow impact). Senior lenders may prefer vendor financing: it reduces the CapEx they have to cover directly, and it aligns the equipment supplier’s interests with the project.

I am going to spoil the valuation section a little, but it is necessary. In my model, the net construction-equity requirement ranges from C$125M to C$383M. I know the spread is wide, but I’m not going to pretend I can forecast the middle of that range with precision. The point is that the dilution question and the share price at which it happens are critical. Where the needle lands depends on Chairman Laracy’s network, Peterson’s execution, and how the three financing levers above resolve. None of that is in the individual shareholder’s hands. But the signals to watch are.

What to Watch

Here are five signals, in the order cash pressure forces them:

1. A bridge financing in 2026 (a temporary financing used to fund the company until the main financing package closes). In the UFS schedule, the first pre-production year carries C$64.7M of capital, followed by C$100.0M in the second year. Against approximately C$6M of current cash and a corporate burn already running in the hundreds of thousands per month, the conclusion is the same: Atlas will likely need a 2026 bridge before the senior debt package closes. Peterson said so openly at the PDAC (Prospectors & Developers Association of Canada) convention: “[parties] are coming to us earlier… is there an opportunity to accelerate.” Atlas is going to raise again before the senior debt closes. To stay on schedule, this bridge financing should close in the next few months.
   
   Three things to track on the next tranche: the instrument (equity/debt/convertible), the subscriber (an “unnamed strategic” participated in October 2025), and above all the price if it is equity. Every incremental cent above C$1 is capital saved on the construction-equity stack. But the company still looks clearly undervalued to me, and debt, even short-term debt used as a bridge before senior financing, would be preferable to another dilutive equity raise.

2. A senior project-debt term sheet. With two Letters of Interest from potential debt financiers already in hand, the next step is a term sheet. That’s Peterson’s stated 2026 milestone. Its signing moves Atlas from paper project to bankable project, historically one of the moments that can trigger the sharpest re-rating on junior developers. The next update is expected by summer 2026.

3. A binding Turf Point access/use agreement, or clear disclosure that lenders have accepted execution of that agreement as a condition precedent to first drawdown. Turf Point is third-party-owned and embedded in the mine plan; a credible senior financing package should either have this agreement signed or explicitly define its execution as a closing/drawdown condition. If a senior debt package closes on schedule, it would be strong evidence that lenders found no blocking issue in the port relationship.

4. The Sandvik MOU converts to binding. Conversion could move a large and defined equipment package out of the equity-funded portion of the capital stack and tell senior lenders that Sandvik has completed enough diligence to put binding support behind the project. This is most likely to happen alongside or after the senior debt term sheet, not before.

5. Scotwood, or another major offtake partner, signs a binding agreement. An industrial counterparty is unlikely to sign a binding agreement before seeing a term sheet on the lender side, so this signal is correlated with the debt signal above. Note that the thesis survives its absence; demand for this salt exists whether Scotwood signs or not. What a binding contract adds is timing: confirmation that the commercial chain solidified fast enough to support financing and the construction decision.

Five signals with one question underneath each: has the sequence started working, or has it stalled? The shareholder who tracks them has enough to decide whether to hold, add, or exit. What they do not answer is what Atlas is worth if it all goes through. That’s the next question.

08. The NPV: Decoding the C$920M Headline

C$920 million, after tax, discounted at 8%.

That’s the number every Atlas investor deck leads with. It is also the number I’ve spent the most time looking at, because it is the one the entire project valuation rests on.

An NPV is assumptions all the way down: salt price, escalation, CapEx, sustaining capital, discount rate, tax treatment, royalty mechanics. Move any one of them, the output moves. Move several at once, the output can double or be cut in half. SLR picked its assumptions knowing every one of them would be challenged by lenders spending millions on due diligence before wiring a cent. What came out the other end is a number built to survive that review.

Built to survive is not the same as built to be accurate. The shareholder’s job is to challenge each assumption and ask where SLR was conservative, where SLR was generous, and where the real number might sit. Every previous section has been setting up what we need for the sections that follow.

The Revenue Side

Revenue in the model rests on three assumptions: an initial price, a volume schedule, and an escalation rule.

The Price

The base price is C$81.67 per tonne, FOB Turf Point. SLR built it as a weighted average from Q2 2025 pricing estimates across the four destination markets (U.S. East Coast, Québec, Maritimes, Spot & Commercial), weighted by the planned 56/15.5/8.5/20 allocation. A third-party estimate, anchored in observable prices, designed to survive lender due diligence.

It is almost certainly the floor.

The model applies one price uniformly, regardless of commercial structure (CIF, DAP, FOB). SLR first builds the C$81.67/t from the planned market mix (56% U.S. East Coast, 15.5% Québec, 8.5% Maritimes, and 20% Spot Sales & Commercial) using port-level pricing data. Once that blend is set, the NPV does not carry separate realized-price lines for a DOT tonne, a spot/commercial tonne, or a packaged/retail-related tonne. The salt market does not work that way. As set out in the Business Model section, the channel a tonne travels through can determine what it earns by a factor of two to six. SLR anchored its average on the lowest-margin channel: bulk contracts to public buyers. Any dollar Atlas captures above that would sit outside the C$920M: through Scotwood’s retail JV, through the Québec spot market during Seaway closure, through commercial tonnes sold to contractors pushed to the back of the queue.

Management knows this. Asked directly at PDAC 2026 how the C$81.67 compared to a spot market where parts of Ontario were paying C$300, Nolan Peterson answered: “our base case for the general bulk product market also probably does not reflect the pricing increases that we are going to be seeing next year... there’s a lot of upside that’s not built into our model right now.”

There is one more issue with the C$81.67. The Ontario winter of 2025-2026 should influence the spring contract cycle on which Atlas’s base case rests. Peterson expects a 5-10% uplift beyond normal escalation in the next contract round. None of it is in the model either.

For all these reasons, SLR’s C$81.67 looks closer to a bear case than a base case.

The Volume Schedule

The volume schedule follows a three-year ramp: 1.6 Mtpa in Year 1, 2.6 Mtpa in Year 2, 3.7 Mtpa in Year 3, then 4.0 Mtpa steady state from Year 4 through Year 22, tapering over the final 2.25 years. These numbers are the model’s most untestable assumption: I have not found a clean salt-mine precedent for Sandvik MB670 continuous miners paired with a mostly battery-electric underground fleet at this scale. There is no clean comparable operation to benchmark the ramp against. The only thing supporting the curve is the technical work behind the UFS, Sandvik’s proposed equipment package, and SLR’s sign-off.

Grade is held above 95% NaCl, priced uniformly as bulk road deicing salt. Some intervals of the deposit exceed 98% NaCl and may qualify for chemical or food-grade markets at materially higher per-tonne prices. Too many preliminary hypotheses sit between here and that first premium tonne, so SLR left that option unpriced, and so do I.

The Escalation

SLR escalates the C$81.67 base at 4% per year for five years, then 2% per year through the rest of the mine life, citing consistency with other North American rock salt technical reports. The structural backdrop laid out in Part 1 (supply frozen for twenty-five years, incumbents under operational and financial strain, demand becoming less predictable and more event-driven) sits well above that curve, and the historical record backs it up: U.S. rock salt PPI has compounded at 4% per year for four decades, meaning SLR is modelling the next 24 years at a blended rate meaningfully below a trend that has held through multiple cycles.

That’s fine by me. Feasibility studies are paid to produce defensible base cases, not to predict the future. What matters for the shareholder is the probability distribution of what actually happens over 24 years, and that distribution skews meaningfully above SLR’s curve.

The revenue line behind the C$920M rests on three layers of conservatism stacked on top of each other:

• a base price heavily anchored to the lowest-margin channel,

• an escalation curve below the 40-year trend,

• and no credit for any higher-grade product option,

each of which leaves room above the model for Atlas to earn more than SLR assumed.

The Cost Side

Again, three assumptions here: the capital to build, the capital to sustain, and the cost to operate.

The Build

Pre-production capital is C$589 million. SLR classifies the estimate as AACE Class 3 (a standard level of cost-estimate maturity for a feasibility-stage mining project): an accuracy range of -10% to +30%, which implies a practical estimate band of C$530M to C$766M. Against the sector, that range is narrow: McKinsey’s 202486 review of 80 global mining projects found that cost and schedule challenges affected 83% of recent major mining and metals projects, with CapEx overruns of more than 40% and schedule delays of 20% to 30%. Across its sample, mining projects averaged about 40% real cost overruns. A typical project would land meaningfully above that top bound.

But Great Atlantic is not a typical project. It is a shallow deposit, with no metallurgical processing plant (one of the most common sources of commissioning overruns), no tailings, no shaft, and a short flowsheet that ships salt almost as-mined.87 Each of those is a line item that can blow up budgets elsewhere and is materially reduced or absent here. And on top of that simpler base, SLR still assessed contingency line by line across the budget: extra money set aside upfront to absorb cost surprises before they become real budget overruns. Riskier lines like mine development and the boxcut (the open-cut excavation that accesses the decline) were assigned 25%. The average across all lines lands at 15.1%. That’s C$77.5M of buffer already baked into the C$589M. For Atlas to overrun the published budget, overruns would have to consume that cushion first, then exceed it.

Even if they did, the margin absorbs a lot of it. SLR’s sensitivity table puts a 35% CapEx overrun (relative to the C$589M, and therefore on top of the 15% contingency already baked into initial CapEx) at 14% NPV hit, dropping the headline from C$920M to C$794M. It is a threshold that kills most projects but one that Atlas walks through without really moving the undervaluation.

The same cushion that protects the budget also gives Atlas room to finance it intelligently. The clearest piece is Sandvik: C$132M of equipment and services, or 22% of the C$589M pre-production CapEx, with vendor-supported financing contemplated if the MOU converts. Hatch and Continental do not finance Atlas, at least not on disclosed terms, but they still matter to the financing file: engineering and conveyor systems move from anonymous budget lines into named scopes with tier-one counterparties. Again, none are binding yet. Converting Sandvik into definitive vendor financing, and Hatch and Continental into bankable execution packages, is Peterson’s job between now and Final Investment Decision (FID).

Sustaining Capital

Sustaining capital over the 24-year mine life totals C$609M in the economic model, more than pre-production capital itself in nominal dollars.88 The number covers: new mining levels opened as the mine ages, a fleet expansion from one continuous miner to six, and continuous refurbishment of underground and surface infrastructure.

This is the line item where I think SLR is most likely to have underestimated. Underground mines can come in around 30% above their sustaining forecasts, and far higher when the outliers are included.89 Applied mechanically to Atlas, that would push the actual sustaining bill somewhere between C$790M and more than a C$1B.

In a typical mine, a large part of that overrun often comes from categories Atlas largely avoids: metallurgical processing plant refurbishments, re-engineering as ore grades decline, compounding investments to drain water and stabilize ground in deep or under-lake operations.90 The product grade is modeled above 95% for the full mine life, there’s no metallurgical processing plant, the salt deposit is shallow and laterally continuous, and the deposit starts around 180 meters in relatively simple bedded-salt geology. What’s left is fleet expansion, new mining levels, and conveyor maintenance. Those are mechanical line items that track forecasts better than chemical or geological ones.

I’d expect Atlas’s actual sustaining to land 20-30% above plan. A conservative overrun by the sector’s standards, justified by a project profile that removes the lines where most mines lose control.

What saves the math is the discount. A 30% overrun on the C$609M nominal sustaining curve, spread across 24 years and discounted at 8%, translates into C$54M91 of after-tax present value. About 6% of the C$920M NPV (vs 30% nominal). The time value of money, so often an enemy in 24-year projects, is here an ally.

Operating Cost

The UFS operating cost averages C$28.17 per tonne shipped FOB Turf Point, with operating cost items escalated at 2% per year from the Q3 2025 base. The cost advantage is the assumed C$0.062/kWh industrial electricity rate. As laid out in the operational design section, the electric underground design makes that low-cost hydropower especially valuable. Layering sustaining capital on top brings sustaining-inclusive unit cost to C$34.90 per tonne. Against the C$81.67 un-escalated FOB base price, the sustaining-inclusive cash margin lands near C$47 per tonne (57% margin) before royalties and taxes.

The C$28.17 is realistic as a starting point. Where it could drift is mostly in the Mining line. At C$15.00 per tonne, it is the largest of the three buckets and the one most exposed to wage inflation in a region with competing labour demand. The number worth pressure-testing is the 2% annual escalation SLR applies to operating costs, including labour. Labour is consistently one of the largest components of underground mining operating cost in mechanized operations.92 If actual inflation runs closer to 3.25% per year (closer to recent Canadian mining wage trajectories), and labour costs rise accordingly, labour would add C$1.10 to the Mining cost on a discounted life-of-mine basis. At 4.5%, it would add about C$2.44.93 Probability-weighting those scenarios, labour would contribute about C$1.30 per tonne of drift to the Mining line,94 approximately 9% drift on that bucket and 4.6% on total OpEx. Using SLR’s published OpEx sensitivity, where a 17.5% OpEx increase reduces NPV by 8.6%, that drift translates to about C$22M off the C$920M base, approximately 2.4% of NPV.

Atlas’s site connected load starts at 10.7 MW and rises to 14.4 MW in Year 3 and 16.7 MW ultimately, per the UFS, which translates to approximately C$1.30 per tonne (about 5% of total OpEx). SLR escalates that line at 2% per year. The Newfoundland industrial tariff has trended faster than that recently, about 7.5% per year between 2019 and 2025,95 more than three times SLR’s assumption. That pace reflects two specific drivers: a one-time base rate reset following the 2017 General Rate Application, and the introduction in 2022 of a surcharge to start recovering Muskrat Falls costs from industrial customers, neither of which is structural to a 24-year horizon. But even if the rate kept compounding at 7.6% for the full mine life, the NPV only loses 5.5% (at an 8% discount rate), about C$51M. The risk is real, but its impact is modest.

Stack labour and electricity drift together and OpEx would likely land around C$31 per tonne, about C$73M off the C$920M NPV, about 8%, in this stress case.

If you think I am being too lenient with an 8% haircut to the NPV, wait until we get to valuation.

The Royalty and the Taxes

The project carries a 3% net production royalty payable to Vulcan Minerals on the Great Atlantic mineral licences, calculated in the UFS on gross revenue net of port charges, processing costs, and the NL Mining Tax. SLR has already deducted it from the C$920M. Without it, the NPV would land near C$1B: approximately a 9% transfer of pre-royalty project value from Atlas shareholders to Vulcan shareholders, locked in for the life of the mine. Who Vulcan is and why this royalty exists is covered in the governance section.

Newfoundland and Labrador’s Mining Tax is 15% of the mine operator’s net income, separate from federal and provincial corporate income taxes. The combined effective rate over the LOM appears to land at approximately 35-40% of pre-tax cash flow, in line with what other Canadian mining projects of this scale carry. SLR relied on Atlas and its advisers, including KPMG work, for the tax calculations, standard practice for a feasibility study, but worth flagging that the C$920M sits on someone else’s tax math.

One structural exposure worth naming. Atlas is a single-asset company in a single jurisdiction. Any change in NL Mining Tax rates, federal CCA classes for mining equipment, or the provincial royalty regime flows straight to the bottom line with no offset elsewhere. NL has not materially changed mining taxation in over a decade, and the province has every incentive to keep the regime competitive. But the exposure is concentrated in a way it wouldn’t be for a multi-asset major.

The Sensitivity Analysis

SLR runs four variables through its sensitivity table: salt price, operating cost, pre-production capital cost, and production losses. Here are the numbers.

Salt price is the dominant variable, and by a wide margin. A 20% adverse move in the LOM (life-of-mine) salt-price assumption wipes out 41% of the NPV. Every other variable is secondary. OpEx and CapEx matter, but are absorbed by the project’s wide gross margin while production losses are essentially immaterial. This is why the salt market takes 10,000 words.

This is also why Atlas is such a large opportunity. The company is not only priced unusually cheaply for its stage of development, but the most important assumption embedded in that valuation is also, in my view, materially underestimated. It is a growth setup embedded inside a value setup, created by the fact that few investors understand the salt market, including most mining investors.

One thing worth noting: the -20% case (C$65/t FOB) is still about C$30/t above Atlas’s sustaining-inclusive unit cost of C$34.90/t, meaning even at a 20% price haircut, the project generates positive cash margin before royalties and taxes and retains approximately C$544M of NPV. This is the structural consequence of the margin moat discussed above. Few mining projects can say that.

The Discounting Mechanics

The C$920M headline is a present-value figure, base date Q3 2025, discounted at 8%. The model projects 28+ years of cash flow (4 construction + 24.25 operations), then collapses them to a single number using one arithmetic operation: divide each future dollar by (1.08)^years from base date.

Over the 24-year mine life, Atlas is projected to generate C$6.66 billion in pre-tax undiscounted cash flow. After discounting at 8%, that becomes C$1.68 billion pre-tax. After taxes and discounting at 8%, it becomes C$920M. The time value of money eats approximately three-quarters of the nominal cash before taxes: a tonne of salt shipped in 2053 is worth only 15% as much as a tonne shipped in 2030.

The UFS gives three discount-rate cases, and the spread between them is the single most revealing line in the sensitivity table:

Moving from 8% to 10% costs the project C$311M: 1/3 of the headline NPV for two percentage points of discounting.96 That is the largest analytical lever in the model, larger than any operating or capital variable in SLR’s sensitivity table.

And it is exactly where my shareholder reading has to diverge from the model.

Why 8%?

Across 100 NI 43-101 reports filed on SEDAR between 2008 and 2020, the average discount rate was 7.18%,97 with a large cluster at 5% and another around 8%. Gold and precious metals projects skew toward 5%; copper and several industrial or specialty-mineral projects in the sample sat closer to 8%.

So why 8% for Atlas?

The convention varies by commodity, jurisdiction, and stage. AMEC’s reference paper98 on the topic notes that a 2-3% premium is standard practice for juniors with limited development experience, no prior exposure to the project’s commodity, or single-asset exposure. Atlas checks all three: junior, no team in North America has built a salt mine in 25 years and one asset in one jurisdiction. By the AMEC framework, SLR could have justified pushing the rate to 10-11% and stayed within convention.

It did not, and for two reasons we’ve already covered. Salt is a commodity with very low volatility (contract price; spot volatility skews to the upside) and a stable upward trend across decades (4% CAGR over forty years). Also, the mine is structurally simple. The things that tend to go wrong elsewhere have fewer entry points here.

The cash flow profile of Great Atlantic in production looks closer to an infrastructure-style industrial mineral asset than to a typical junior mine. It is long-lived, contractable, essential, and tied to an end market where buyers are forced to secure supply before winter. The risk profile should therefore compress materially if the mine is financed, built, and contracted.

So the math sits on a balance. The junior premium pulls up, while the cash-flow stability pulls down. SLR landed at 8%, which sits near the non-5% mining convention and close to where industrial/base-metal projects tend to cluster. Clearly not generous, reasonably fair today, and definitely conservative once the mine is financed and operating.

My Choice of Discount Rate

A discount rate exists to translate future cash flows into present value.

The more unmodeled risks an interval of time contains, the more aggressively future money should be discounted.

From there, I had three choices.

I could push almost all the risk through the discount rate, then value Atlas Salt by flexing the UFS NPV at different rates. I could do the opposite: identify and quantify every risk directly, apply those deductions to the project value, and discount the remaining cash flows closer to a risk-free rate. Or I could use a mix of both. I chose the third path.

I try to identify, quantify, and charge as many Atlas-specific risks as possible. But I also accept that some risks remain outside my reach. The next two sections do most of that work. They are where I quantify the major risks and apply the relevant haircuts.

That leaves the discount rate itself. SLR used 8%. I will say it now: I am already charging far more risk than SLR could reasonably load into a feasibility-study NPV. There is a reason the next two sections represent about one-third of this entire deep dive. I could probably justify using 5% after explicitly modeling so many risks, but I do not want to.

Two reasons.

First, the probability that 5% would be aggressive is too high. I want to avoid inappropriate conservatism, but I also refuse to build the investment case on aggressive assumptions.

Second, simplicity. SLR built the UFS around an 8% discount rate and only provides sensitivities for selected variables, with discount-rate outputs at 5% and 10%. Keeping the 8% anchor makes the bridge cleaner and easier to audit.

So I keep an 8% discount rate throughout the valuation.

Using 10% would be even less appropriate in my view. It could have been defensible inside the UFS as a broad risk adjustment. But after explicitly charging financing friction, working capital, corporate costs, residual leakage, execution risk, delay risk, ramp-up risk, dilution, and many interactions between those risks, applying a 10% discount rate on top would double-count too much of the same risk.

The preamble is over. Now to the real work: assessing risk.

9. Risks

The Financing

Atlas owns a feasibility-stage project with C$589.1 million of pre-production CapEx, a C$920 million after-tax NPV8, and no operating cash flow yet.

Before the thesis can become real, that financing gap must be closed. The risk is that it closes on terms that dilute away too much of the upside for existing shareholders.

Atlas raised C$8.7 million in October 2025, giving it enough capital to keep advancing early works and engineering, but not enough to build the mine. By year-end, cash was already back to C$6.0 million, which would not be enough to fund even the first half of 2026 now that early works had begun. The UFS allocates C$64.7M to YR-4 (2026), including C$39.3M of mining capital (starting around middle of Q3-2026), before the project steps into a C$100M second pre-production year. Atlas will therefore need to raise additional capital in Q2 2026, or by early Q3 2026 at the latest, if it wants to stay on schedule. Endeavour Financial is leading the project-financing process. But the full project-financing package is unlikely to close before the bridge cash need arrives, making a bridge financing almost certainly required. Sandvik has announced an expanded non-binding MOU covering approximately C$132 million of equipment and services, with vendor-supported financing contemplated if the agreement converts into definitive documentation. Scotwood, Hatch, and Continental Conveyor also reduce the “empty-shell” problem: Atlas is surrounding the plan with a prospective customer/retail partner, engineering, equipment, and material-handling partners.

Some dilution is unavoidable. Even if the company is able, on paper, to raise all the required capital through debt, senior lenders will likely require a minimum equity contribution to align stakeholders and cover items debt will not fund (part of the financing fees, vendor deposits, contingencies, etc.). More than a question of price, it will also be a question of timing. If Atlas does its bridge financing with equity, that dilution will probably happen at a valuation close to today’s. But if dilution is pushed back, for example after a binding offtake or vendor contract or after the announcement of the main senior project-financing package, those milestones should be reflected in the valuation, and the equity raise would make more economic sense. The near-40% insider/related-party ownership has to play its role precisely here.

From here, the checklist is fairly clear:

• Bridge financing in the next few months (by early Q3 at the latest), to keep Early Works moving while Atlas waits for the main project-financing package, ideally through short-term debt or through a favorable convertible structure.

• Conversion of Sandvik’s MOU into binding vendor financing.

• A senior debt term sheet, with an update expected around summer 2026 according to the CEO.

• Additional binding offtake, especially any upgrade to Scotwood’s volumes or terms. This would reassure potential lenders. For shareholders, it would be one of the most important milestones, because it would confirm that a meaningful portion of Atlas’s salt could be sold at better margins than the UFS valuation captures.

• The price and timing of any equity raise. This is the key dilution variable. Equity raised before the next milestones is, in my opinion, expensive equity.

The Build

This is the second major risk for junior miners, alongside financing.

Great Atlantic Salt does not carry the full usual hard-rock mining risk stack. What remains is more practical: can Atlas access the deposit, build around it, and ramp it at the cost and pace assumed in the feasibility study?

It is SLR’s job to quantify all of this in the UFS, and here is its conclusion: after mitigation, the two risks that remain high are failure to achieve the planned decline advance rates and capital cost increases. In plain English, the declines can take longer to drive than planned, and it can cost more to build than planned. Groundwater inflows, grouting, dewatering, contractor productivity, and the rest all flow into the same bucket: time and money before first cash flow.

The problem with delays is that they increase the amount of capital the company needs before the mine starts funding itself. As we just saw, capital raised before the re-rate is the most expensive capital in the story.

Some mitigation is already embedded in the plan. Atlas and its consultants have completed a substantial geotechnical and hydrogeological program, including drill holes, packer tests, vibrating wire piezometers, and laboratory testing. Atlas is also trying to reduce execution risk the right way, along the lines SLR recommends: experienced mine-build management, early engineering work, contractor engagement, and fixed-price packages where possible. It has also put real names around the project: Hatch on engineering, Continental on material handling, and Sandvik on the underground equipment package.

But reducing uncertainty does not eliminate risk: advance rates are only proven once the declines are being driven, and water management is only proven underground.

I do not underwrite those risks as project-killers. As we have seen, cost overruns beyond the contingency already embedded in the UFS have only a moderate impact on NPV, while delays mainly show up as higher pre-production funding needs. Great Atlantic is a simpler build than most mines, and several parts of the design draw on proven salt-mine analogues, including Kilroot, an underground salt mine in Northern Ireland that has been operating since 1965.

I would rather underwrite them as dilution amplifiers. If the declines advance more slowly, if water proves more annoying than expected, or if CapEx drifts higher before the financing package is locked, the asset could still be built. But current shareholders may simply have to pay more of the bill, either through less favorable financing terms, or through direct dilution at valuations that would probably be unattractive.

That is what I will watch:

• Follow-up geotechnical and hydrogeological work on the declines. Atlas has already completed a substantial program, but SLR still recommends additional packer testing, groundwater monitoring, transient modelling, and updated inflow estimates before full construction. If this work comes back clean, it would reduce much of the biggest modeled source of delay and extra CapEx.

• Binding execution packages with Hatch, Continental, and Sandvik. The MOUs help, but they do not yet lock scope, pricing, or schedule.

• Remaining capital-phase permits, Turf Point approvals, and the commercial port-use agreement. Full construction and port execution are not fully de-risked yet. Once they are, one more bottleneck disappears. The port question matters enough to come back later.

• A refreshed CapEx and schedule before FID (Final Investment Decision). The UFS number is only the base case. A more precise cost-and-schedule package would de-risk the project, even if it comes in higher than the current estimate. Less uncertainty on the final bill means less uncertainty on the financing need, and that alone could justify a meaningful re-rating.

• Actual decline performance once excavation starts. This is the central build risk: how many meters Atlas can advance per month, and what that says about other risks (water inflows, grouting, ground conditions, etc.). The first months of decline development will be the best early indicator of whether the schedule is holding.

The Commercial Ramp

Even if Atlas finances the project on acceptable terms and builds the mine within the UFS envelope, it still has to sell the salt.

This is not a trivial point, but it is not the central one either. Great Atlantic is not expected to go from zero to 4.0 Mtpa overnight. The UFS assumes a ramp-up, with saleable production starting at 1.6 Mt in the first year before scaling toward nameplate capacity. That gives Atlas time to place its volumes into the market gradually.

The market context also helps. As discussed earlier, Eastern North America is a seasonal, import-reliant road salt market. Deicing salt is not a new product; Atlas is “only” trying to replace tonnes that already move into the region every winter, often from much farther away. The project sits approximately three days from U.S. East Coast ports, can serve nearby Canadian demand, and should be able to ship year-round. The Scotwood MOU also matters here because it shows that a large packaged-salt distributor is already willing to engage before production.

I would frame this as low relative risk on demand. Given the supply-demand tension in North America, Atlas’s salt is likely to find buyers. The question is at what price.

Even if the Scotwood MOU does not convert, even if Atlas fails to penetrate the retail market quickly, it would still be a potentially lower-delivered-cost source of salt in many target lanes, with better reliability than distant imports and a cost position that would be competitive with legacy local suppliers. And in this market, that is everything: reliability and price. So if needed, it could use part of its cost advantage to win tonnes at lower realized prices. That would not be ideal, but it is very different from having no market.

In the end, the commercial ramp has one job: turn tonnes into the highest possible realized price.

What I will watch here is the sales mix:

• Scotwood conversion, or another major offtake partner. Atlas should try to sell its salt at the highest available margins, but not by becoming overexposed to one channel. In retail and packaged salt, the right path is partnership. The sweet spot, in my view, would be 50-66% of production placed with two or three strong retail/commercial partners, leaving the rest for bulk contracts and spot optionality.

• Contracts outside the basic bulk deicing channel. As a shareholder, I want evidence that the customer book is broadening. I do not want Atlas to enter the final construction year with one dominant channel and a financing case built around a narrow buyer base. Senior lenders will likely think the same way.

• A clear logistics strategy for local and regional sales. If Atlas wants to earn more than bulk port pricing by selling salt itself, it needs to show how those tonnes actually reach the customer. Since Atlas has mentioned the possibility of local salt sales before the first official year of production, it would need to figure out the logistics early and show stakeholders that the system works.

The Salt Price

The single most important variable remains the average realized salt price.

A few mild winters can hurt volumes, spot pricing, and the timing of reorders. That does not bother me much. Road salt demand has always moved with winter severity. What matters is the long-term direction of the market: more disruptive winter events, shifting demand geographies, supply chains built for the old map, and buyers that increasingly care about reliability as much as price.

The real long-term risk is regulatory change or innovation that structurally reduces rock salt usage. For now, I do not see it. Environmental pressure is real, especially around chloride accumulation, but the policy response to date has generally been to adopt better salt management practices while still relying heavily on salt or salt-derived products.

That said, this is a variable I will monitor continuously during the holding period. Road salt has survived decades of environmental scrutiny without a scalable replacement because it remains cheap, available, effective, and easy to deploy. But a new credible substitute that works at scale and at comparable cost would be one of the main paths to permanent capital loss, even if I think it is very unlikely. This risk can only be mitigated by active information monitoring. If I ever come across something credible enough to change my view, I will obviously write about it.

The Permitting Tail

Permitting has already done most of the work it needed to do for the thesis. Great Atlantic Salt was released from the provincial environmental assessment process in April 2024, with conditions, and the federal agency (IAAC) confirmed that the project does not require a federal impact assessment. Since then, Atlas has received early works approval and started moving from paper approval to site preparation.

What remains is the permitting tail that comes with any mine build: translating the environmental release into phase-by-phase approvals, satisfying the conditions attached to the release, and making sure the final construction design stays inside the envelope regulators have already reviewed.

This risk is not fully eliminated. It never is. A missing approval can delay a work package. A regulator can ask for more detail. A design change can force another round of process. But this is no longer the kind of permitting risk that usually deserves a large valuation discount. The big question, whether the project is broadly acceptable in Newfoundland and Labrador, has already been answered.

I will watch whether the remaining approvals move in line with the construction sequence. The project has already cleared the main permitting gate, so the main thing that matters now, in my opinion, is whether conditions, phase approvals, and the Turf Point port work create friction at the wrong moment. If they move with the build, the permitting tail stays a schedule detail. Great. But if they start delaying critical work packages, it will become a real financing problem, with the consequences discussed above.

The Port Agreement

Here is the risk in physical form:

Yes, this is a small port. A very small one, actually. One single ship-loading system. And from that small piece of infrastructure comes a risk that could derail the whole thesis, one Atlas does not fully control: the commercial agreement with the owner of Turf Point. Every number in this deep dive assumes that at some point before first salt shipments, this agreement is signed.

From an operational perspective, every other counterparty can, in principle, be replaced: offtaker, equipment supplier, engineer, lender. The port cannot, at least not without redesigning the full logistics case. The mine plan, the conveyor, the material-flow route, the site layout, and the environmental assessment are all built around this specific port. There is no alternative deepwater port within similar economic distance.99 Atlas is structurally captive to one counterparty.

This is far from a red flag today. Atlas is approximately four years from planned first revenue and has not closed its main financing package. The red flag would appear if financing stalls and the port is cited as the reason.

Several things mitigate the risk:

1. First, Turf Point is not a greenfield port. Atlas, first through its corporate predecessor Red Moon and now under the Atlas Salt name, has long operated in the same district and is already using Turf Point to ship gypsum from the Ace Gypsum quarry since the first shipment in September 2018. The commercial relationship with the port operator has been continuous for years and remains active in 2025, with C$67,000 in gypsum proceeds recorded through the first nine months of the year. Given management’s track record and standing in the region (particularly Laracy), the relationship likely predates the current salt-project negotiations through his various ventures.

2. The incentives are obvious. Atlas plans to spend C$58.5M on upgrades to a port it does not own. By the end of the capital program, the port owner should hold a substantially more valuable asset, without necessarily paying for the upgrade itself.

3. If Atlas completes the upgrade as planned, the existing berth’s loading capacity would rise to 1,400 tonnes per hour. At a 4 Mtpa throughput, this translates into approximately 10 hours of loading per day across 285 operating days per year, every year, for most of the 24-year mine life. Compare that with Turf Point’s current documented export base of approximately 150,000 to 200,000 dry tonnes per year of gypsum. It is as if Amazon approached a small regional airline offering to pay for a new plane fresh off Boeing’s assembly line, and then pay for 24 years to use it.

4. The counterparty is a local family-owned business rather than a large corporate group with extensive capital and legal resources. They could try to leverage their position within this relationship, but any impact on the NPV should not be large enough to break the economics.

The risk also appears to have been worked on by management for years. In the NI 43-101, SLR notes that it relied on a 2021 Stewart McKelvey “Turf Point Property, Report on Title” memo from Justin Hewitt to Patrick Laracy for ownership and title information. Hewitt is a Stewart McKelvey lawyer in St. John’s whose practice covers corporate, commercial and real estate matters, including mining and commercial agreements. That means the legal status of the port had already been identified as a specific due diligence item years before this project-financing process.

That matters because lenders will almost certainly require the same point to be cleaned up before construction debt is committed. The title work is the beginning of that process, and it began several years ago. Before construction debt is funded, lenders will likely require a binding port access/use agreement, plus protections around capacity (tariffs, term, termination rights, remedies, etc.). The relationship must become bankable before construction debt can be drawn.

On operational timing, the UFS gives little concrete detail. The port works are described, but Turf Point does not appear as a separate visible workstream in the summary execution schedule. The only explicit timing disclosed is on the permitting side: in-water works may require Fisheries Act approvals that could take 18 months or more, although SLR believes the current execution schedule leaves enough time to obtain approval before port construction begins. Still, it also means the port remains less transparent on timing than the mine itself.

On paper, this is a symbiotic relationship. Atlas can bring enormous value to a local infrastructure asset; Turf Point, in return, gives Atlas the export route that makes Great Atlantic work. In practice, we cannot know every friction point before the agreement is signed. But both sides have a lot to lose if the contract is not signed. And I suspect the Dolomount family, which controls the port, wants this mine to be built at least as much as I do as a shareholder.

So I see the risk as very low probability, but potentially devastating if it materializes.

I will watch two things here.

• Obviously, whether the port agreement has any impact on the schedule, including through the potential 18-month-plus permitting process for in-water works.

• More importantly, whether the main financing package arrives on time. Senior lenders should have access to far more information than we have on the relationship between Atlas and Turf Point. If the financing package closes on schedule, it would be a strong signal that they found no blocking issue in this potential bottleneck.

The most important risk is the average realized salt price Atlas would achieve. I am willing to accept the other risks materializing: construction delays, CapEx overruns, even financing that is not especially favorable. The mine could be two years late and CapEx could come in 50% above budget; if Atlas signs a binding contract with Scotwood or another distributor to push 50% of production into packaged/retail-related channels, and if salt prices keep following something close to their historical trajectory (which, as a reminder, reflects durable economic forces), the real project value could still end up above the C$920M NPV.

Speaking of valuation, it is finally time to get to the heart of the matter.

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10. Valuation

The Ratio and Its Double Reading

Buying Atlas today costs approximately C$120 million. Building the mine would cost C$589.1 million more. Almost 5x what was just paid to own it. At the end, if the UFS holds, a mine throwing off approximately C$188 million in after-tax cash flow per year, for more than two decades at least.

Put plainly: P/NPV is about 0.13x. For every dollar of value SLR assigns to the project, the market pays thirteen cents. Producing mineral assets typically trade closer to 0.6x to 1.0x of NAV/NPV. Atlas is not producing. But even adjusted for what separates today from 2030, the gap is unusual.

The C$920 million NPV sits at the project level. It is the UFS value, discounted back to Q3-2025, before any adjustment for financing, dilution, execution risk, or the fact that shareholders do not yet own a producing asset. Today’s market cap is a different object. One describes what could be, the other what is.

No simple arithmetic reconciles them. What bridges the two is the set of risks a greenfield mining project still carries. Atlas has cleared most of them. The provincial environmental assessment process was cleared. The reserve and resource base is defined. The local community is onside.

What remains is execution and financing, the two risks that dominate the next four years. Both need to be read in light of what was discussed in Sections 2, 3, 7, 8, and 9: Great Atlantic’s characteristics should make execution risk lower than in a typical mine, and the same features should also reduce financing risk, made easier by the nature of salt pricing: low volatility and a clear upward drift over time.

Two readings of the 0.13x P/NPV coexist.

The first is that the market is pricing those risks honestly. A junior four years from first tonne, with no construction financing closed and no binding offtake, can deserve a steep discount to its modeled NPV.

The second is that the ratio mostly reflects factors outside the project itself: no real analyst coverage, TSXV illiquidity,100 exposure to an industrial segment generalists find boring, and the hangover of the 2022-2025 junior mining cycle.

I spent the rest of this section arguing that the second reading is closer to the truth, and that even if the first reading deserves more weight, the math still works for patient capital.

Before getting there, one more filter has to be named. Even if Atlas delivers exactly what SLR models, the existing shareholder does not keep a 100% economic claim on the full C$920M. Between now and first tonne, Atlas still has to raise a large equity cheque, approximately C$125M to C$383M in my model, depending on the final debt stack, vendor financing, bridge financing, and the full project funding cost, including the items treated outside the headline UFS and initial CapEx (see Section 7 and 8). The price at which that equity is issued determines what’s left in existing hands.

At C$0.50, little. At C$2.50, much more.

Two questions shape what follows. Why does a junior rarely trade at 1x P/NPV, even when everything goes right? And what’s left for the existing shareholder once the project is financed?

Qualitative Valuation

Here, no heavy math, promise. The dirty work, assumption by assumption and discount by discount, comes in the subsections that follow. This first pass is only meant to check that the napkin is not too far from a desirable outcome.

Producing mines rarely trade at 1x P/NAV. Even the best operators, in tier-one jurisdictions with steady cash flow, usually trade at a discount. That is not irrational. A discounted cash flow is the present value of every future year through the mine’s depletion, and every one of those years still has to happen.

The earlier you are, the wider the discount.

Methodological note. Throughout this analysis, I often refer to Atlas through the Great Atlantic Salt’s NPV because, for underwriting purposes, Atlas is effectively a single-asset developer. In mining equity research, valuation comparisons are usually framed as P/NAV. NAV captures the value of the entire company: project NPVs, cash, debt, and other corporate adjustments. NPV is the present value of a specific project. In Atlas’s case, the distinction is mostly semantic: Great Atlantic Salt drives almost all of the company’s current value, while cash and liabilities are small enough that Atlas’s NAV is very close to the C$920M after-tax project NPV calculated in the UFS. I will therefore use NAV or P/NAV when discussing the industry framework and the Lassonde Curve, and NPV or P/NPV when applying that framework to Atlas or referring specifically to project-level value. In this case, for all practical purposes, the concepts are broadly interchangeable.

Pierre Lassonde, co-founder of Franco-Nevada, popularized this pattern in the 1990s.101 A mining project’s market value tends to move through a recognizable curve: a speculative spike at discovery, a long valley through feasibility and permitting, a re-rating at financing, another at first production, then gradual convergence toward 1x NAV as operating history accumulates. The valley in the middle has a name: the orphan phase. Too late for drill-hole speculation, too early for institutions that cannot buy pre-production stories. A strange place to be. Often a very good one.

It is not some kind of model pulled from an average of observed mine valuations. It is a real process governed by economic and psychological laws. Put more simply, it is a discovery rather than an invention. Through this framework, the valuation ranges have become well known, even though the exact bands vary depending on the source, commodity, jurisdiction, and cycle. A first economic study, what the industry calls a PEA (Preliminary Economic Assessment), usually gets a project to a P/NAV range of approximately 0.3x to 0.5x. A completed Feasibility Study, with bankable engineering and a visible permitting path, tightens the band to around 0.5x to 0.6x P/NAV.102 Construction moves the multiple higher again. At first production, a new class of investors becomes eligible to buy, and the stock can start trading less like an option on a mine and more like the mine itself, valuation can then begin to converge toward 1x NAV.103

Here’s the Lassonde Curve:

Let’s transpose it to Atlas’s market cap.

Three phases are visible. The speculative spike from late 2020 through mid-2022, triggered by the PEA launch and delivery, took Atlas from approximately C$5 million of market cap to C$380 million. A 36x move in the stock two years, after dilution (a 75x in market cap). Then came the orphan phase. From 2022 through late 2025, the stock ground lower for three years as the project matured and the market lost interest. This is classic junior mining cruelty: the asset got better while the share price got worse. Since late 2025, the first signs of a re-rating have appeared. Market cap moved off the lows, from approximately C$35 million toward C$120 million, as the UFS landed and Early Works began on site.

Atlas has crossed the dead zone of the Lassonde curve and reached the stage where the market starts asking a different question. For three years, Great Atlantic was a strange industrial mineral project with a study attached. Today, it is a major-permit-cleared project with a completed feasibility study, Early Works underway, and project financing in process.

That alone could form the basis of a thesis: a project leaving the orphan phase and already beginning to re-rate. The problem, or rather the opportunity, is that the curve implies a valuation Atlas has not yet reached. That is the second source of upside.

There is one honest caveat. The 0.3x to 0.6x P/NAV developer range is drawn mostly from gold, copper, and base-metals juniors. Industrial minerals developers are rarer and less familiar to investors. That could justify using the low end of the range for Atlas.

But the caveat cuts both ways. The fact that most developer comps are gold and copper says more about the availability of comparable companies than about the right multiple for an industrial-minerals asset.

In gold or copper, a project trading at a P/NPV of 0.1x on the eve of construction usually says something ugly. The market has seen that movie too many times. It does not trust the project, the numbers, or the team. That is statistical learning at work.

Salt does not have that history in public markets. A listed mining company whose only current business is developing a salt mine, with no operating asset and no precious metal angle, is nonexistent in North America. The closest historical reference I have found is Malagash, Canada’s first underground rock salt mine, developed in Nova Scotia after drilling began around 1917 and the mine opened in 1918. That was another era. Almost nobody in today’s investor base has a mental model for this. Statistical learning is complicated when the sample size is basically zero. Most investors have never had to value a salt mine, think about road salt pricing, analyze the evolution of deicing salt supply and demand, or ask why this project might be simpler than the mines they already know. That is why I decided to spend hundreds of hours of my time on deicing salt.

Put that aside for a moment and look only at the mining and economic characteristics. Deicing salt prices have compounded at about 4% annually for decades, with limited drawdowns and occasional sharp spikes when supply tightens. Gold would envy that pricing profile. The mine itself is structurally simple: shallow deposit, no metallurgical processing, no tailings, short flowsheet. By my reading, Atlas belongs at least in the middle of the 0.3x to 0.6x P/NPV range, maybe near the top.

Seen through the Lassonde curve, Atlas is the archetypal orphan: single asset, single jurisdiction, TSXV listed, industrial mineral, almost no sell-side coverage (the only existing coverage is one month old), and no obvious generalist institutional bid. Most junior mining portfolio managers will not own what they do not know exists. Most small-cap generalists will not touch it because Atlas is pre-revenue. A salt major has little reason to move before the asset is further de-risked. The stock has few natural buyers, except the handful of investors who specifically hunt for this profile.

Two forces point the same way: the curve appears to be turning, and the chart already shows it. Even after that first move, Atlas still trades as if Great Atlantic were several stages behind where it actually sits.

I know, all of this is just valuation by analogy. Every mining project has specifics that can move the real number by thirty percent in either direction, and analogies miss those specifics. The work left is to value Atlas Salt ourselves, as investors who hate losing money do: slowly, with dirty hands.

Quantitative Valuation

The C$920 million headline has already been unpacked. We know what it is: a project NPV, discounted at 8%, built from the UFS mine plan and the costs SLR chose to include.

Shareholders do not really care about what Great Atlantic is worth in the UFS. The final problem, our final problem, is what remains for Atlas shareholders after the missing costs are brought back into the analysis, discounted, financed, and finally divided across the share count that will exist when the mine is funded.

One clarification before the math: the UFS is my starting point, I do not mechanically deduct the same cost line twice. Pre-production CapEx, sustaining capital, operating costs, taxes, royalties, and closure costs are already embedded in the C$920M project NPV. When I adjust them, I do it explicitly as a scenario adjustment: higher pre-production CapEx in bear cases, delay costs, execution leakage, or financing consequences. What follows is therefore the bridge from project NPV to equity value per share: the costs not fully captured by the UFS, the frictions that sit above the project model, and the shareholder-level consequences of funding the mine.

The full mechanics are in the valuation workbook below. I am not going to reproduce every line here. What matters in the text is the bridge: what I deduct, why I deduct it, and what remains before execution, salt price, and dilution.

Here is the full DCF model.

Undiscovered Compounders Atlas Salt Full Dcf

157KB ∙ XLSX file

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I separate the deductions into three layers:

• First, financing friction. Debt does not dilute, but it is not free. Equity dilutes, and the price matters more than the fee. Bridge capital will be needed before the main package closes. None of this is included in the UFS NPV.

• Second, the cash items outside, or not fully captured by, the UFS: working capital, and the corporate costs that continue above the project model (public company costs, board, audit, listing, IR, head office, etc.).

• Third, the bucket that cannot be modeled cleanly: FX drift, future approvals, rights of way, port leakage, drilling, small permitting costs, and the other items that never deserve their own heroic spreadsheet tab but still deserve a haircut.

Only then do we get an adjusted NPV. That adjusted number becomes the base for the next step: execution, delay, salt price and finally dilution.

Methodological point before moving on: every number below (unless explicitly stated) is a present value. The final per-share value is therefore a value today, not a future share price after the mine is built.

To stay consistent with the UFS, I kept the September 30, 2025 valuation anchor. Strictly speaking, time has passed since then. At an 8% annual discount rate, rolling the model forward by six months would add about 4% to the values shown below, all else equal. I am leaving that aside to keep the methodology clean and anchored to the UFS date.

So the numbers that follow are slightly conservative on timing alone.

Start with the cash outflow.

Financing Costs

This is the most expensive missing layer, and the hardest one to model cleanly. So we need to spend a little time on it.

Atlas needs cash to build the mine. I size the financing package around a C$625 million starting funding need: the C$589.1 million UFS pre-production CapEx, plus approximately C$36 million of working capital and corporate cash needs outside the UFS through the construction/start-up window (see Financing section), before scenario-specific CapEx overruns and before the cost of arranging the capital itself. That cash will come with costs attached. I do not deduct the debt raised or the equity contribution as a separate cost, because the capital expenditure they fund is already inside the UFS NPV.

“Costs attached” is the polite version. This is finance. Everyone takes a bite: bridge interest, PIK interest, cash interest, lender fees, equity issuance costs, entry and exit fees, advisory costs, legal costs, and closing costs. Some of those costs are paid in cash. Some are capitalized into the debt. Either way, they reduce what reaches the common shareholder.

The first problem is obvious: Atlas has not published the final financing structure or drawdown calendar. Since those costs have to be discounted, timing matters. A lot actually. The same nominal C$500 million of debt is not the same instrument if it is drawn late, drawn upfront, or allowed to accrue as PIK during construction. Financing is path-dependent, so the model has to make assumptions.

My base framework is simple. Atlas raises bridge financing first, before the main project-finance package closes. The bridge is the toll between early works and the moment senior lenders are finally willing to close. It is repaid once the full package is available. The main package is then split between senior debt, vendor financing from Sandvik, subordinated debt, and equity.

I treat senior debt and vendor financing together for leverage purposes. The economics still differ. Sandvik vendor financing would be equipment-backed, operationally aligned, and probably less punitive than pure project debt. But for the common shareholder, both sit ahead of equity and both absorb part of the project’s debt capacity.

From there, I build three cases: bull, base, and bear. For readers who want the mechanics, the full financing model is in the accompanying file above. I am not going to turn this section into a loan schedule, but here is a summary of the scenarios.

The model requires simplifications. I give Atlas no credit for government funding, no credit for incremental financing-related tax shields, and I do not roll forward the UFS NPV from Q3 2025. I do not try to offset the conservative shortcuts, but I partly offset favorable shortcuts with higher debt costs where appropriate. Again, the assumptions are all in the file.

The financing sheets are built on adjusted CFADS, or Cash Flow Available for Debt Service. That means timing matters twice. First, because earlier cash flows are discounted over fewer years. Second, because those same cash flows determine how quickly Atlas can repay debt. Every additional dollar of revenue pulls repayment forward and reduces financing friction. Every additional dollar of cost increases the funding need, extends repayment, or both.

The result is a present value financing friction of:

• Bull: -C$147.7M

• Base: -C$240.0M

• Bear: -C$325.6M

Yes, that is large: 16% of the UFS NPV in the bull case, 26% in the base case, and 35% in the bear case. Everyone gets paid before the shareholder. In the bull case, the project can still send some cash to shareholders while debt is outstanding. In the bear case, the cash sweep effectively says: lenders first, equity later. This also does not include dilution from the equity raise. That comes later. This section only charges the financing friction attached to funding the mine.

This is, by far, the largest cost layer outside the UFS.

I actually think my bear case is probably too bearish. These look more like the terms lenders would demand from a volatile metals project with a difficult build, not from a simple salt mine selling an essential commodity with something close to a built-in price floor. The MOUs and LOIs are already a strong hint of that. If I were underwriting only what I think is most likely, my bear case would sit only slightly below the current base case, the bull case would stay where it is, still with no credit for government funding, and the new base case would land somewhere in between. But the point of this exercise is to survive being wrong. So I still underwrite the genuinely bad case.

The next deductions are smaller.

Working Capital and Corporate Overhead

That C$625 million number sizes the financing; it does not charge the working-capital balance or the corporate cash items themselves. So if working capital and residual corporate overhead sit outside the UFS economics, they still need to be deducted from the project NPV. That is value shareholders cannot use.

Working Capital

Working capital is cash locked in the business. It comes back at the end, but it loses value on the way.

It is made up of receivables from customers paying after delivery, finished product sitting at the port, consumables, and payables offsetting part of the balance. It therefore grows with revenue.

I model it as a percentage of annual revenue, using 8% in the bull case, 10% in the base case, and 12% in the bear case. The cash impact is only the annual change in that balance. If revenue rises, Atlas has to lock up more cash. If revenue falls, cash is released. At mine closure, the remaining working capital is released back into cash, but with far less value.

Using the UFS revenue schedule as the timing base, with each case’s revenue curve from the DCF, discounted at 8%, this gives:

• Bull: -C$32.6M

• Base: -C$32.4M

• Bear: -C$33.8M

The result looks counterintuitive at first: Base < Bull < Bear, with all three clustered around the same range. The reason is simple: working capital is the toll paid on growth. Each additional percentage point of working capital destroys about C$4.1M in the bull case, C$3.2M in the base case, and C$2.8M in the bear case. Combine those different working-capital rates with different revenue curves, and the order gets messy. In the end, the conclusion is still the same: approximately C$33M of value disappears because cash comes back too late. Who said time is money again?

Now to “real” expenses.

Residual Corporate Overhead

Here I am not adding mine G&A again. The UFS already includes project-level operating G&A and the people needed to operate Great Atlantic. What I am reserving for is the residual listed-company layer above the project: board, audit, listing fees, IR, head office, financing readiness, and the general cost of remaining public while the mine moves from study to construction to first cash flow.

I model that layer at C$3.0M / C$3.5M / C$4.0M per year during construction, in line with the normalized corporate burn discussed in the Financing section. Once the mine is producing, I step it down to C$2.0M / C$2.5M / C$3.0M. Atlas will still be a listed company, with board, audit, listing fees, etc., but it will no longer be a pre-revenue developer trying to finance and build a C$625M project. I escalate those costs at 2% per year (in line with the UFS cost escalation), and discount them at 8%.

That gives:

• Bull: -C$30.0M

• Base: -C$36.7M

• Bear: -C$43.3M

Together, working capital and residual corporate overhead reduce the NPV by C$62.6M in the bull case, C$69.1M in the base case, and C$77.1M in the bear case.

Residual Risk Reserve

Here we are firmly in the artistic part of the exercise. I have to reserve for risks that are, by definition, not precisely estimable.

SLR lists a series of exclusions from the capital cost estimate. Here they are.

Some have already been quantified above. Some represent upside I do not underwrite. Some are either not applicable or already handled elsewhere in the model or by the company. One known item is the geotechnical / hydrogeological program explicitly excluded from the UFS capital estimate. I keep it inside my residual-risk reserve at a fixed C$3.0M (the amount disclosed in the UFS). What remains is the undefined tail.

I am not going to build a tab for each of them. The data is not there, and the precision would be fake.

One item deserves a separate note: currency. It can hurt Atlas, but it can also help. The UFS is built in Canadian dollars, while some equipment, services, shipping, and contractor costs may be exposed to the U.S. dollar. A weaker Canadian dollar can raise those costs. But if part of Atlas’s realized pricing is U.S.-dollar-linked, or set by import-parity pricing against foreign supply, a weaker Canadian dollar can also help the revenue side in Canadian-dollar terms. That is why I do not force a large residual reserve into the bull case.

I apply a valuation reserve directly against the UFS NPV: 1.5% in the bull case, 3.5% in the base case, and 5.5% in the bear case.

This gives:

• Bull: -C$13.8M

• Base: -C$32.2M

• Bear: -C$50.6M

That closes the cost pre-execution bridge.

Put together, the pre-execution cost bridge takes:

• -C$224.1M out of the bull case,

• -C$341.3M out of the base case, and

• -C$453.3M out of the bear case.

The C$920M UFS NPV becomes C$695.9M, C$578.7M, and C$466.7M before execution, the separate salt price / mix adjustment, and dilution.

As a reminder, Atlas Salt trades at approximately C$120M of market cap. We still have room in the bear case. Good, because there is more value left to consume.

Execution

This is the last large project-level risk Atlas Salt will carry until the first tonne reaches the port.

SLR knows it, which is why the UFS budget already contains a cushion. SLR’s pre-production CapEx is C$589.1M, but that number includes C$77.5M of contingency on top of a C$511.6M subtotal. Contingency equals approximately 15% of the pre-contingency estimate. So the first layer of construction disappointment is already inside the C$920M NPV.

I break execution into 5 variables:

• Initial CapEx overrun

• Sustaining CapEx overrun

• OpEx overrun

• Delay

• Ramp-up miss

Case by case.

Bull Case

In the bull case, the contingency does its job. The project is built inside the UFS envelope, on the UFS schedule, and ramps as planned. One could add back part of the contingency to NPV if everything came in perfectly. I do not include it, as I view it as too unlikely.

Execution haircut: C$0M.

Base Case

In the base case, the mine is still built, but the build is messier than the feasibility study assumes. Initial CapEx and Sustaining CapEx come in 15% above the UFS budget, OpEx overruns by 10%, first production slips by one year, and the ramp-up is a little slower than planned.

Initial CapEx overrun. The extra 15% takes initial CapEx from C$589.1M to approximately C$678M. Since the UFS number already contains contingency, this is heavier than it looks: C$678M is approximately 32% above the pre-contingency estimate. Using SLR’s capital-cost sensitivity, I charge C$54.3M against project NPV.

Sustaining CapEx overrun. The UFS carries C$609.1M of sustaining CapEx over the mine life, more than the initial build in nominal dollars. A mine that costs more to build can also cost more to keep running. In the base case, I assume 15% sustaining CapEx drift. Discounted over the mine life, that removes C$27.0M of present value.

OpEx overrun. Operating cost also drifts. The UFS models C$28.17/t shipped FOB Turf Point. That is a good starting point, but as we saw in the risks section, labour, maintenance, contractors, power, port handling, and general underground operating discipline all have room to move. I charge a 10% OpEx overrun, using my interpolation of SLR’s OpEx sensitivity as the conversion table. That removes C$52.7M of NPV.

Delay. I take one year. SLR models a 48-month pre-production period, so one year is a 25% schedule slip. The delay haircut is C$58.3M. I apply the delay after the cost variances, because there is less value left to delay once CapEx, sustaining CapEx, and OpEx have already taken their bite.

Ramp-up. I charge C$20M. The UFS already assumes a three-year ramp to nameplate, so this is only a timing penalty: fewer tonnes early, slower customer conversion and weaker operating rhythm in the first years.

Base execution haircut: -C$212.3M.

That is the normal ugly case, the usual translation from feasibility study to the ground.

Bear Case

This is where I bring in the mining reference class.

McKinsey’s 2024 review of mining project delivery found that, over the past decade, major mining projects suffered average real cost overruns of approximately 40% and average real schedule delays of approximately 25%. Larger projects did worse, and the type of extracted material was one of the variables that mattered most.

As discussed earlier, Great Atlantic sits on the simpler end of the mining spectrum. Its construction file is mostly underground access, material handling, storage, and port logistics, rather than a metallurgical processing plant, a concentrator, a tailings system, or a shaft. The remaining risks are more… prosaic: decline advance rates, water management, contractor productivity, conveyors, commissioning, and the first operating rhythm. They can still cost time and money. They just give the project fewer ways to go wrong than the average mine in McKinsey’s sample.

Still, the bear case has to hurt.

Initial CapEx overrun. I assume a 30% overrun on the UFS initial CapEx number. This is not a direct SLR sensitivity point, so I use SLR’s capital-cost sensitivity as the conversion factor. The overrun takes Initial CapEx from C$589.1M to approximately C$766M, or approximately 50% above the pre-contingency estimate. I charge C$108.7M against NPV.

Sustaining CapEx overrun. I assume 25% drift. The remaining sustaining risk is mechanical: new levels, fleet rebuilds, conveyors, underground infrastructure, and maintenance. Discounted, that removes C$44.9M. Note that the impact is limited because those expenses sit far in the future and are therefore heavily discounted.

OpEx overrun. I assume 15% drift. Labour, maintenance, contractors, power, port handling, and insurance compounding above the UFS line escalation. That removes C$79.1M.

Delay. I take eighteen months. On a four-year construction schedule, that is 37.5% slippage, already worse than McKinsey’s mining average, applied to a project that should be easier than the average mine. After the cost variances already charged, the present-value cost is C$75.0M.

Ramp-up. I charge C$50M. This is the least precise line, so I keep it as a proxy. Against SLR’s production-loss sensitivity, it is equivalent to 2.5 points of additional production-loss effect.

Bear execution haircut: -C$357.7M.

Putting all the cases together, we get this:

• Bull: -C$0M

• Base: -C$212.3M

• Bear: -C$357.7M

Now put execution back into the full pre-price-adjustment bridge. After financing friction, working capital, corporate overhead, residual risk, and execution variance, the C$920M UFS NPV becomes:

• Bull: C$696M

• Base: C$367M

• Bear: C$109M

In the bear case, almost 90% of the UFS NPV is consumed by costs. But there are still two more variables to account for. The two variables that required more than 20,000 words, several hundred hours of work, and that sit at the heart of this opportunity: the price of salt and the product mix.

Salt Price

This is the most important part of the deep dive. So before touching the model, let me restate the market.

The North American rock salt market is structurally short. It has to import 8 to 10 Mtpa of deicing salt, most of it into the East Coast, often from less reliable offshore supply chains. Domestic supply is tight too, with several incumbents already under pressure. Demand has a floor because public agencies must hold minimum inventories. Every winter, municipalities, private contractors, and retail buyers need deicing salt. Consumption can vary with weather, but the need does not disappear. Mild winters mostly shift the timing of replenishment while severe winters expose the shortage immediately.

That shows up in price.

Over the last forty years, U.S. rock salt PPI has compounded at 4% per year. According to Atlas Salt’s investor presentation, the actual historical price CAGR would be approximately 4.2%, with very limited drawdowns, and shallow ones when they happen. That is before looking at the spot market, which can spike violently when winter stress meets tight inventories. During the 2025-26 winter, spot prices tripled in some regions, just as they had the winter before. Those spikes do not vanish when the snow melts. Empty depots have to be refilled, buyers remember who delivered and who did not, and part of the spot pressure flows into the next contracting cycle.

Atlas also has a mix angle. Only about 35% of planned production is currently covered by the Scotwood non-binding MOU, and management wants to push a meaningful portion of volumes into retail through that relationship. Retail is a different market from bulk municipal salt, and Atlas could earn materially higher margins there than in bulk, depending on the final JV economics

Finally, climate change changes the pattern of use. More freeze-thaw cycles, more freezing rain, and more unstable winter events. More salt will be consumed at the wrong time, in the wrong place, and less predictably, in a market that already runs on tight flows. Atlas is the only new North American salt mine with a completed UFS and Early Works underway in twenty-five years.

That is the state of the North American deicing salt market, and that is the price backdrop we are valuing.

With that market in mind, now take the UFS price curve.

SLR escalates the rock salt price at 4% per year for five years from the base date, and 2% per year thereafter. The starting point is defensible, but the fade to 2% is where I completely disagree. Not if we take into account everything above.

My base case is obvious: 4% CAGR. That is the reality of the last several decades. I use 5% CAGR in the bull case and 3.5% CAGR in the bear case. Why not simply use the UFS’s price curve, at least for the bear case? Because that is where the alpha sits. A 2% CAGR strikes me as absurdly low relative to any reasonably plausible scenario. As a shareholder, I am not trying to prove that Great Atlantic Salt can work under a sterile feasibility-study curve. I am trying to estimate the distribution of outcomes as close to reality as possible, because that distribution determines what I am being paid for the risk I take. A 3.5% CAGR is already a hard underwriting line. It assumes a historically low price trajectory, without giving credit to a single one of the factors discussed above.

So, what does this do to NPV?

For each year, I compare my price index to SLR’s price index, apply that ratio to UFS revenue, and then convert the PV-weighted price difference into after-tax NPV using SLR’s own salt-price sensitivity. In the UFS, a 10% increase in the LOM salt price adds C$188.6M of after-tax NPV8. Put simply, I applied the UFS-measured impact of a 10% increase in salt prices to my bull, base and bear cases using linear interpolation.

That gives:

• Bull: +C$753.5M

• Base: +C$392.9M

• Bear: +C$233.5M

The bear case adds C$233.5M to NPV. The base case adds C$392.9M, and the bull case adds C$753.5M.104

This is why the opportunity starts where the UFS stops.

Take a seasoned mining investor. They read the UFS, take SLR’s assumptions, run the same risk math I did, then run the dilution math, and think: “No. Too far-fetched, not enough margin of safety. I’ll pass.” Fair. They have seen hundreds of gold, copper, or uranium projects. They have seen cost overruns, broken studies, optimistic ramp-ups, and shareholder dilution disguised as progress. What they have probably not seen is a salt mine. No comparable new rock salt mine has opened in North America in twenty-five years. No pure-play publicly listed salt mine developer that has gone through this exact path in decades. There is no mental model sitting on the shelf. It is simply the result of hundreds of hours of work spent understanding the Eastern North American deicing salt industry and Atlas Salt’s place within it.

The market gap is therefore partly educational. Atlas needs investors to understand what kind of asset they are looking at.

The CEO deserves credit here. Over the last few months, he has been speaking at many conferences and investor presentations, trying to educate investors on Atlas and on the salt market. That is how I found the company in the first place. In the very short term, this is probably the best way to unlock value. The story is there. It is just buried under the unfamiliar. Undiscovered, in the literal sense.

Shareholders can only hope he keeps doing it over the coming months, before the heavy work really begins.

There is still a limit to what management can say. What are they supposed to do? Stand up and say: “SLR completely underestimated the salt price, our NPV should be 40% higher, believe me”? In a sector where everyone is suspicious, they would lose credibility immediately. Probably with good reason.

My position is different. I am not management. I do not get paid to convince anyone to buy the stock. I invested based on these numbers myself. The assumptions are laid out. The model is visible. The sources are there. All I have done is collect the information, organize it, and show the math. Anyone putting money at risk should verify the work independently.

Once I replace SLR’s long-term 2% fade with a price curve that better matches the salt market, the rest of the model becomes much easier to underwrite. The thesis can absorb an eighteen-month delay, a mine built about 50% above the pre-contingency estimate, and still leave out the 288 Mt of additional Indicated Resources and the 868 Mt of Inferred Resources not included in the mine plan, possible low-cost government funding, higher retail margins, and everything else that could still go right.

There is still one more source of potential upside to address: the sales mix.

Sales Mix

The UFS assumes Atlas sells into four buckets:

• U.S. East Coast: 56.0%, or 2.24 Mtpa

• Canadian Maritime Provinces: 8.5%, or 0.34 Mtpa

• Québec: 15.5%, or 0.62 Mtpa

• Spot sales and commercial: 20.0%, or 0.80 Mtpa

That gets Atlas to the full 4.0 Mtpa production rate. SLR then converts that destination mix into a weighted-average price of C$81.67/t FOB Turf Point. So, regardless of whether the physical sale is CIF, DAP, or FOB, the economic model brings everything back to one FOB Turf Point price (see Section 4). In other words, the UFS collapses geography, channel, contract structure, and product format into one number. Clean? Yes. Lendable? Yes. But too clean for a shareholder.

The UFS treats Atlas mostly as a bulk supplier selling into destination markets at a normalized FOB-equivalent price. It allocates 20% of volume to spot sales and commercial. That line alone is 0.8 Mtpa, and it is explicitly not the same animal as bulk public-sector tonnes. Yet, once the economics hit the model, everything still gets compressed into C$81.67/t FOB. That is where I think the UFS leaves value on the table.

Scotwood had already signed a non-binding MOU with Atlas that contemplated 1.25 to 1.5 Mtpa of volume through a Canadian retail / packaged-salt partnership. Against the 2023 mine plan, that was approximately half to 60% of planned production. Against the new 4.0 Mtpa UFS plan, it is still 31% to 37.5% of annual volume. According to my estimates (see Section 4), if 1.5 Mtpa eventually earns C$60-80/t of incremental economics above the bulk FOB case, that is C$90-120M of annual pre-tax economics before discounting. Over the mine life, discounted at 8%, with no additional price escalation, that rough math gets to around C$630-840M of present value after leakage and taxes.

And Atlas does not see that as the ceiling. Management has said it is discussing a larger retail/distribution allocation with Scotwood and other distributors, which would increase the share of that channel and could push it close to, or even above, half of the sales mix. The company has also mentioned selling directly into Newfoundland and Labrador, where logistics are shorter and Atlas could be able to capture more of the downstream margin itself. So the gap is clear: the UFS still treats most of Atlas’s volume as bulk road salt, while Atlas is actively trying to move a larger share of its salt into higher-margin channels.

Management has both the ability and the incentive to push more salt into higher-margin channels. The fact that the largest packaged retail deicing distributor in the United States approached a junior developer six years before first production tells me the UFS mix is likely too conservative. But it is still only a signal. There is no proof. There is no binding contract. Good. If the risk had already disappeared, the valuation would not look like this.

For me, the bear case is boring bulk economics. And that is essentially what the UFS modeled. So my bear-case starting price is C$81.67/t, the UFS FOB Turf Point price.

From there, I built the base and bull cases. Instead of blindly stacking assumptions around unknown channel mixes and unknown price points, I kept the UFS price as the anchor: C$81.67/t. Then I added a simple mix-driven uplift: +C$5.83/t in the base case, and +C$13.33/t in the bull case:

• Bull: C$95.00/t

• Base: C$87.50/t

• Bear: C$81.67/t

That is not aggressive. At 4.0 Mtpa, the base case uplift is only C$23.3M per year before escalation. Using the C$60-80/t Scotwood economics, that is the equivalent of only 0.3 to 0.4 Mtpa of higher-margin volume, spread across the whole 4.0 Mtpa production base. The base case only assumes a small amount of channel improvement leaks into the FOB-equivalent realized price.

Same idea for the bull. C$53.3M is still below the C$90-120M/year that a full 1.5 Mtpa Scotwood outcome could imply. Even the bull case only captures the equivalent of approximately 0.7 to 0.9 Mtpa of the 1.5 Mtpa (based again on the C$60-80/t channel economics).

Now the mix-only DCF impact.

That gives105:

• Bull: +C$430.8M

• Base: +C$162.7M

• Bear: C$0

The bear case has no sales mix uplift. The base case adds C$162.7M from mix. The bull adds C$430.8M. In all three cases, the full Scotwood math remains mostly outside the model. Any expanded Scotwood allocation, any new retail / distribution partner, any higher spot allocation, and any local direct-sales margin are also outside the model. This is not heroic conservatism; it is just the only way to handle uncertainty when both the probability and the economics are still impossible to pin down.

The final adjusted shareholder NPV before dilution now looks like this:

In the bull case, the cake is enormous. Even in the bear case, there is still significant cake.

But one final question remains: how many slices will the cake have to be cut into?

Share

Dilution

Great Atlantic is too large for the current balance sheet. The UFS pre-production CapEx is C$589.1 million, before the shareholder-level layers added in this model. Atlas can reduce the equity cheque with senior debt, vendor support, subordinate debt, and a bridge facility, but it cannot eliminate it.

I start from the fully diluted share count. Basic shares are approximately 110.7 million. Fully diluted shares are approximately 119.6 million. The current option, RSU, PSU, DSU, and broker-warrant stack is already inside that number, so I use it as the denominator from the start. I then add two small reserves on top: a financing sweetener for warrants or similar instruments needed to clear the construction equity raise, and a future SBC reserve through first production. The SBC reserve is modeled as a percentage of the final diluted share count. I also give no credit for possible cash proceeds from future option or warrant exercises.

In the execution layer, I charge cost overruns on top of the UFS pre-production CapEx number, which already includes the 15% contingency: an additional 15% in the base case and 30% in the bear case. These overruns also have to be financed, at least partly with equity. OpEx and sustaining CapEx overruns are assumed to be funded from operating cash flow. They reduce CFADS and slow debt repayment in the financing model, but they do not create additional construction shares.

I do not assume the entire overrun is funded with equity, that would be too blunt. I also do not assume senior lenders simply increase their exposure on the same terms, that would be too generous. In the base case, 40% of the overrun is funded with junior / cost-overrun debt and 60% with equity. In the bear case, 25% is funded with junior debt and 75% with equity. That adds C$53.0M of equity in the base case and C$132.5M in the bear case. The resulting extra debt and equity then runs through the same constraints as the base financing package: fees, DSCR (debt-service coverage ratio), PIK interest (payment-in-kind), cash sweep, etc. Again, every detail is in the DCF.

Once the base dilution and the dilution caused by a potential CapEx overrun are included, the net construction-equity requirement, before grossing up for issuance fees, is:

• Bull: C$125.0M

• Base: C$240.5M

• Bear: C$382.5M

Great, we have the amount. But at what price?

The main variable is timing: when does Atlas raise, and how much? Before senior financing? After senior financing? After the construction corridor? After a Sandvik conversion? After a binding offtake? Every layer of de-risking should increase the probability of a re-rating, and therefore reduce the number of shares Atlas has to issue for the same amount of cash.

Rather than inventing a full issuance schedule out of thin air, I use a blended issue price across the construction equity for each scenario.

• Bull C$2.5: Atlas re-rates quickly and keeps pushing the equity raise further down the curve.
  Final diluted shares: 177.2M

• Base C$1.75: Atlas finances part of the project relatively early, then moves moderately along the Lassonde curve over the following years.
  Final diluted shares: 279.9M

• Bear C$1: No real re-rating. The share price even weakens, and Atlas issues shares by the hundreds of millions until the relief of the first tonne shipped.
  Final diluted shares: 571.9M

From bull to bear, the share count is multiplied by 3.2. All else equal, that means about 1/3 as much value per share.

This is why the sequence over the next 12 to 24 months is essential. Every binding agreement before the equity raise changes the denominator. Every milestone reached increases the probability of a re-rating and reduces the number of shares issued. Since I started writing this deep dive, the stock has already risen more than 60%, but in my opinion, it is still far from a price that would make equity financing attractive.

I also think management may be making a capital allocation mistake.

In the investor presentation, management suggests that part of unlevered FCF could be returned to shareholders from the first production year. I understand the idea. A dividend can attract a different type of investor, possibly open the door to certain income-oriented funds, and maybe support the share price before a refinancing or a future equity raise. But that is a probability.

What is a certainty, if construction debt is still outstanding, is that every dollar of cash flow paid out as a dividend is a dollar not available for principal repayment. And every dollar of principal not repaid means more interest accumulating. That is arithmetic.

In any case, I doubt the covenants will allow Atlas to distribute that much cash in the first years of production. The only shareholder return that could make sense early would be a buyback, and only if the covenants allow it and if the stock is still obviously undervalued despite production.

Activist moment over.

I have kept you here for 30,000 words. Time to give you what you came for.

How much is Atlas Salt worth?

How Much Is Atlas Salt Worth?

One vocabulary point before moving on: I start from the fully diluted share count. That makes the adjusted NPV per share slightly lower than a basic-share calculation, because the options, RSUs, PSUs, DSUs, and broker-warrant stack is already in the denominator. Run it on basic shares and the per-share value looks higher. But those instruments exist. I prefer to count them from the start.

Here is the DCF summary:

At a share price of C$1.20, the setup looks like this:

• Bull case, close to a 9x.

• Base case, almost a 3x.

• Bear case, down 50%.

These numbers are NPV per share, so they are discounted values, not future share-price targets. Each year, all else equal, the discounting fades and the present value rises.

Of course, all else will not be equal. During the four-year construction period, some milestones will have been reached, some risks will have disappeared, others will have materialized and been quantified. Time reduces uncertainty and risk, but it also reallocates the pie. The longer you wait, the more of the upside, or downside, has already gone to those who were willing to bear the uncertainty.

And this is where the setup becomes more… interesting:

The valuation above excludes several factors that could materially increase intrinsic value. They are the pieces I have deliberately left out throughout this deep dive, framing that choice as “conservatism” or “safety”:

• First, the resource. The UFS mine plan is built around 95 Mt of Probable Reserves, but the deposit is much larger: 288 Mt of additional Indicated Resources at 96.0% NaCl and 868 Mt of Inferred Resources at 95.2% NaCl. In most mining projects, that would be too speculative to count, but salt is different. Bedded salt deposits tend to be homogeneous and laterally continuous, and the conversion from resource to reserve is usually far cleaner than in metallic mining.

• Second, the sales mix. Atlas has the opportunity to sell part of its salt into channels with margins far above the UFS blended FOB pricing framework. It is actively trying to build that opportunity now through retail partnerships. If the sales mix ends up with 50% in retail/distribution and another 10-20% in local and spot sales, which management appears to be targeting, my bull case for this variable could look like a bear case.

• Third, government financing. Any public support would reduce dilution and financing costs, which are by far the largest external cost layer in the DCF. The project has already received a small amount of public funding once, and the province has every reason to want a multi-generational employer in western Newfoundland. It is a big “if,” but also a big “then what?”

• Fourth, early production. Atlas has mentioned the possibility of starting production before the first official UFS production year. If that happens: less debt, less interest leakage and higher NPV. Even the bull case assumes Atlas follows the UFS construction path. But if early production becomes credible, the market will not wait until the first full year of production to reprice the stock.

• Fifth, the tax shield. I have not credited Atlas for the tax shield created by the extra costs I deduct above the UFS. Some of those costs should reduce taxable income, either immediately or over time. The exact value depends on tax treatment and timing, so I leave it out. Directionally, it is upside.

• Sixth, M&A. This is the card I have waited to play since the beginning. My future as an Atlas shareholder may be shorter than the mine life, because Atlas is an obvious potential acquisition target. The likely window is around first production, either shortly before or shortly after, when the project has been de-risked enough for a buyer but before the market has fully capitalized the long-term cash flows. It would also remove several risks from our side of the table. I will come back to this later.

So the model gives us the core of the argument. The omitted upside gives us the shape of the distribution. And the distribution matters more than the point estimate.

My view is that the probability of landing in something equivalent to the base case or better is above 75%, and the probability of landing in the bear case or worse is below 10%. The remaining probability sits somewhere between the bear case and the base case. I am pulling those numbers from my own judgment. There is no formula for this. But for the bear case to become the central outcome, several things need to go wrong at the same time, while many of the things that could go right need to fail to show up.

• The main variable in the bear case is the salt price. For that case to become the central outcome, salt prices would need to stay much closer to SLR’s cautious long-term curve than to the forty-year producer-price history discussed earlier. That is hard to reconcile with the structure of the rock salt market: aging supply, shrinking domestic capacity, import dependence, procurement stress, and a buyer base that cannot choose to stop buying when winter hits. In both 2025 and 2026, parts of the market ran short of salt and spot prices spiked. These episodes are starting to look less like “exceptions” and more like the new shape of the market.

• Even if salt prices compound more slowly than I expect over the next two decades, Atlas would still have to sell its salt in the conservative UFS mix, with limited benefit from retail or higher-margin commercial channels. That is also not what the company appears to be trying to build.

• Even if those two variables land close to the bear case, a lot of other things still have to line up badly: cautious senior lenders, no government funding, no vendor financing, a share price low enough to create heavy dilution, delays and CapEx overruns beyond the UFS assumptions, no early production, and no meaningful offset from any of the omitted upside.

That is a big “then what,” but it needs a lot of “ifs” to get there.

For those who skipped the 30,000 words and think I am being too optimistic: read the full thesis. Every piece above was developed earlier, one by one, number by number.

And even if the bear case materializes and the share price does not give you a clean exit, you can still wait. Once Atlas has repaid the construction debt, the business should be able to return most of its free cash flow through dividends and buybacks. Under the UFS assumptions, once production reaches 4 Mtpa, that means about C$150M to C$200M of after-tax cash flow per year for about two decades. But we will come back to that in a moment.

This is why Atlas may be one of the best risk/reward setups I have come across in my career.

The upside is large, and I think the market is applying the wrong discount. Yes, the risks are real. Yes, there is a real risk of permanent capital loss: a historic earthquake like the 1929 Newfoundland and Labrador event, an armed conflict, name your black swan. But this is no longer the usual junior-mining risk of hoping the ground contains something valuable.

Great Atlantic is shallow. It does not require a vertical shaft. There is no lake sitting above the mine. The product is rock salt, so there is no metallurgical puzzle to solve and no complex processing plant to build. The deposit has been drilled, the salt is there, the end market exists, and the project has already cleared most of the permitting path.

What remains is mostly financing and execution, the two risks no greenfield developer gets to avoid. They can seriously hurt the economics if handled poorly. But they are narrower than the discount suggests. And yet Atlas trades at an NPV multiple one-half to one-third of mining peers that, at a comparable stage, often still carry more geological, metallurgical, permitting, or commodity-price risk.

The second source of the discount is simpler: investors do not know where to put it.

There has been no comparable new salt mine in North America for decades. There are almost no public comps, no futures curve, no liquid benchmark. For mining investors, salt looks too boring, sometimes not even like mining. For other investors, a mine looks too risky. So the asset sits between categories.

You can feel it even at the mining conferences Atlas Salt attends. The questions often start from zero. Sometimes there is almost a smirk in the premise: a company trying to sell rock salt, here, at a mining conference. These are mining people, and even they do not really have a mental bucket for it.

It is undervalued because it is undercovered, and because the risks are clearly overstated, creating potential enormous upside.

What we care about now is how this upside materializes.

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11. Repricing

There are only three paths for value to reach shareholders:

• The market recognizes the setup before the cash flow arrives.

• The mine is built and the cash flow is returned through dividends and buybacks.

• Someone buys the asset.

Recognition, distribution, or acquisition.

Recognition

The first path is simple: reduce the perceived risk and close the knowledge gap around the asset.

Atlas has approximately four years between today and first production, currently targeted around 2030. These are four years during which the company can progressively de-risk itself by climbing the Lassonde curve, as hundreds of companies have done before: permits, binding contracts, financing, early works, construction, and then ramp-up.

Some steps are unavoidable: remaining permits, financing, early works, construction, and commissioning. Without them, there is no mine. Others are not strictly necessary, but would change the speed of the re-rating: a binding offtake, vendor financing, strategic equity, government support. Then there are the catalysts Atlas does not control: tariffs, a supply disruption, or a winter harsh enough to remind buyers that road salt only looks boring when the supply chain works.

Start with the gates Atlas has to clear.

The Critical Gates

These are the gates Atlas has to pass before Great Atlantic becomes a mine. Calling them “catalysts” almost understates the point. If one of them never happens, the thesis breaks. The question is timing, cost, and our sempiternal friend, dilution.

Construction-financing package announcement (expected H2 2026 to H1 2027). Atlas has appointed Endeavour Financial as project finance advisor, and the current financing file already has several visible pieces: senior project debt, possible export credit-agency participation, Sandvik’s non-binding C$132 million equipment and services MOU, and whatever equity remains after the debt stack is set. A term sheet announcement could move Atlas closer to the low end of the funded-developer range, around 0.2x to 0.3x of P/NPV.106 Atlas moving from 0.13x to 0.3x would represent approximately a 2-2.5x re-rate on the market cap alone, before any further catalyst is priced. Closing the financing package is bigger still, and in my comparable-developer framework could be worth another 0.1x turn of P/NPV in comparable cases. As a current shareholder of Atlas Salt, this is the event I am waiting for the most. And every shareholder should be too.

Binding offtake agreement with Scotwood or another major commercial partner (likely around the financing process, if it happens). At some point around the financing process, Atlas will need to turn commercial intent into something lenders can underwrite. That does not necessarily mean Scotwood at any price, nor an unconditional take-or-pay agreement four years before product exists. Buyers rarely accept that kind of delivery risk before financing, FID, construction, and final product specifications are locked. What lenders will want is commercial visibility: enough contracted or highly credible demand to support the first years of production, and enough confidence that Atlas can place its tonnes at the prices assumed in the financing case. Scotwood matters because it opens the packaged and retail channel, where the UFS gives Atlas essentially no specific credit. If the MOU converts on meaningful volume and acceptable pricing, the impact could be far larger than a simple confirmatory catalyst, it could change the NPV itself. So I would not treat Scotwood as being on the critical path. The base case survives without it. But a binding agreement with Scotwood, especially if expanded beyond the original 1.25-1.5 Mtpa framework, would reduce commercial uncertainty, help the financing discussion, and force the market to rethink the project’s economics. And if the market continues to ignore it, the cash flows will have the final say.

Construction decision / FID (expected H2 2027). The formal transition from “development” to “construction.” FID triggers the drawdown of vendor financing, starts the construction clock, and eliminates the “will they actually start construction?” question. Historically, the FID is worth 0.1-0.15x to the P/NPV uplift on its own, and it removes a categorical risk that was weighing on the P/NPV multiple. After FID, execution risk becomes the dominant risk. And more information should not take long to arrive.

Early decline performance (expected H2 2027 to H1 2028). After the main financing package, this is the most important milestone in my view: how fast the declines move, how wet the ground is and how much grouting Atlas needs before it can keep going? Atlas will do the work to mitigate the risk, but only building the mine will answer the questions. A clean first stretch would tell shareholders that the main decline risk is starting to clear. A messy one would not necessarily break the project, but it would bring back the two things every developer and shareholder wants to keep out of the conversation: time and dilution. As long as salt prices keep rising at 4% or more, and Atlas starts converting commercial intent into contracts that lock in volumes with higher-margin channels, I am willing to wait and accept further “bad” dilution. As we have seen, delays and additional financing needs are not the most value-destructive variables in the model.

First salt on surface (expected H2 2029 to early 2030). The first salt reaching surface is the moment the market knows the mine physically works. Production can still ramp slowly after this, but the binary “does it exist or not” risk is gone. The P/NPV multiple could move toward the construction-to-ramp-up range, about 0.6x to 0.8x if execution is clean.107

Commercial production (targeted 2030). This is the first moment where the story can be judged by shipments, customers, margins, and cash conversion. It also changes the shareholder base. Many institutions cannot or will not own pre-production developers, whatever the spreadsheet says. Once Atlas sells salt and begins building an operating record, that restriction starts to fade. The P/NPV could then move closer to 1.0x over the following 12-18 months as operational history accumulates.

These are the mechanical catalysts. Atlas simply has to execute. Not everything is within the company’s control, but that is precisely the point: how management responds to problems will reveal the quality of the team. Each one removes a reason to keep the stock in the “penalty box”.

The next bucket is different. Atlas does not need these variables to hit the base case, but they can compress the timeline if they land.

The Variables

I would treat these as second-order sources of re-rating. They just make the market more willing to believe the thesis once the main boxes are checked.

Additional offtake agreements beyond Scotwood. If Scotwood becomes binding on the currently disclosed terms, Atlas still has approximately 2.5-2.75 Mtpa of nameplate capacity left to place. That remaining volume is where the next layer of value could, and should, appear, ideally through emergency/spot sales or through additional retail/commercial distributors. I would not expect one big “aha” moment here. More likely, each contract removes a little uncertainty and gives the market one less excuse to value the project like an orphaned junior.

Strategic investor participation. The October 2025 LIFE financing included a “strategic investor,” but Atlas has not disclosed the name. If that investor, or someone in the same category, appears again in the construction equity tranche, the signal may matter more than the cheque itself. It tells the market that someone with a strategic reason to care has done some work on the asset and was still willing to put money in. In a junior developer, that can move the discount rate in people’s heads before it ever moves in the model. On its own, that could expand the P/NPV multiple by 0.05x to 0.1x, possibly more depending on the name. The market has seen this before. In exploration and development stories, a recognized backer can sometimes reframe the whole asset almost overnight. When someone like Michael Gentile discloses a position, it is not unusual to see a junior move 3x or 4x in a few weeks simply because the shareholder register suddenly gives the market permission to pay attention.

Analyst coverage. Atlas is no longer completely uncovered. Ventum initiated coverage in March 2026. Still, one analyst is not enough to create institutional ownership, but it is enough to give investors a model, a target price, and a broker who can put the name in front of accounts that were never going to start from zero. Coverage is still thin, but the awareness discount is no longer entirely untouched. Each additional piece of coverage after the financing package is announced increases the likelihood that deep-pocketed investors start paying attention to the setup.

TSX main-board uplisting from TSXV. Many institutions simply cannot own TSXV names, or cannot own them in size. An uplisting widens the buyer base. I would see it less as a catalyst and more as a later-stage “release valve”: once the project is de-risked enough, the exchange itself stops being part of the discount.

Indicated & Inferred Resource conversion. Atlas has 288 Mt of Indicated Resources and 868 Mt of Inferred Resources grading 95.2% NaCl. If even a modest portion is converted over time, the mine life could extend by several more decades. That would lift modeled NPV through duration rather than margin. The market will probably not pay much for it today, which is fair. The interesting point is that conversion should get easier once the mine is underground and Atlas has better geological information than surface drilling can give it. A useful reminder for the patient investor: Great Atlantic is a laterally continuous bedded salt deposit, and salt deposits tend to be relatively homogeneous. Some salt mines have operated for decades on the back of only a handful of initial drill holes. That does not make the Inferred Resource bankable today, but it does make the optionality more credible than it would be in a structurally complex gold or copper deposit, especially in an M&A scenario.

The External Catalysts

Atlas does not control these, but any one of them would compress the re-rate timeline.

1. A severe winter. Spot salt prices crossed C$300/t during the 2025-26 Ontario season. Road salt procurement is backward-looking in the way most municipal procurement is backward-looking: a spot price spike does not fully reset the next contract cycle, but part of it tends to bleed into the following year’s contracted prices. A repeat season would lift the North American road salt pricing environment and make Atlas’s operating leverage harder to ignore.

2. Disruptions to imported salt. A tariff, duty, trade dispute, or ocean-freight shock affecting Chilean, Egyptian, or Moroccan supply could tighten a market that is already structurally short. The current political environment around “buy North American” makes this more plausible than it would have been five years ago. Higher ocean freight would have a similar effect. It would not make imports disappear: even after adding Atlas’s planned 4 Mtpa to North American supply, the market would still need several million tonnes of imports every year. Most likely, the result would be higher delivered prices, mostly passed through to American end customers, whether the buyer is a DOT or a homeowner who still remembers slipping on their icy driveway last winter.

3. Disruption at an existing North American producer. Compass Minerals’ Goderich mine, with approximately 7.5 Mtpa of capacity, has faced labour issues and geological disruptions in recent years. A material shutdown there would leave existing demand with fewer local tonnes and make many procurement managers more willing to pay up, because nobody wants to be the one who ran short of salt when the roads froze.

None of these is required. The Lassonde framework already gives the direction of travel, but external shocks would shorten the distance between recognition and value.

Timing and Sequence

The visual below summarizes the sequence: what has to happen, what can accelerate recognition, and what could force the market to reprice the asset from the outside.

If Atlas re-rates, it will probably happen in steps, both up and down. The important point is that Atlas has more visible paths to positive recognition than to permanent impairment. The negative events, however, are more concentrated in the near term: financing terms, dilution, early-works execution, and the first underground questions.

That is why this setup only makes sense for patient capital. Over a one-year horizon, the risk/reward can be dominated by the timing of one bad event. The thesis can be right and the stock can still trade badly for a while.

But the re-rating is not strictly necessary. A truly patient shareholder can simply wait for the asset to turn into cash flow, then hold it for 24 years, potentially longer if additional resources convert.

Sit-on-your-Ass

At around C$1.20 per share, Atlas does not need to re-rate quickly for the investment to work. It could simply become a cash-flowing asset. A very patient shareholder can sit through the financing, the construction, the ramp-up, and the debt repayment window, then own their share of the mine when the cash starts coming back.

In my model, Atlas has effectively repaid its construction debt by the end of 2036. Add two years for “safety”. By 2039, the project would, under that model, still be generating around C$190 million of after-tax cash flow per year.

Now assume 100% dilution from today. With twice as many shares outstanding, and if that cash flow were fully paid out, that would be approximately C$0.80 per share in annual dividends.

On a C$1.20 purchase price, one year of dividends would return 67% of the initial investment.

Thirteen years later, yes. But at that point, the reserve-backed mine life would still have approximately fifteen years left, before assigning any value to the broader resource base.

The example is deliberately simplistic. It ignores capital allocation choices, tax timing, debt covenants, and whatever else reality decides to add. But it shows the shape of the setup. A truly patient shareholder can buy a share that could, years from now, start behaving almost like a bond with an absurd coupon on original cost.

The UFS implies nearly C$4.6 billion of cumulative after-tax cash flow over the reserve-backed mine life, before shareholder-level financing costs and before assigning any value to the 288 Mt of Indicated Resources beyond the reserve base or the 868 Mt of Inferred Resources sitting outside the mine plan. Against a market cap near C$120 million, I think we can call that an asymmetry.

Again, all the risks discussed throughout this deep dive still apply. But so do the unmodeled upsides.

The market wants recognition. I want it too. But recognition is not the only way to get paid. Waiting can work too.

In fact, there is a way not to wait that long.

Someone Else Pays

Someone else could buy the asset, and I think that outcome is fairly plausible.

Shareholders do not need it for the thesis to work. I am not even sure they should want it, unless the price is exceptional. But ignoring the strategic-buyer angle would be lazy.

Why M&A

Atlas is not worth the same amount to a minority public shareholder and to a potential strategic acquirer.

Atlas owns the scarce piece: a potential new Atlantic supply source in a market short of local tonnes. But in salt, the tonne is only half the asset. The route to the buyer is the other half: terminals, storage, contracts, trucks, retail accounts, procurement relationships, and… trust. That is where a large part of the margin lives.

Atlas has to build or borrow that system, but a strategic buyer may already own it.

That changes the math, literally. The public market discounts Atlas for the missing pieces around the mine. A buyer with those pieces already in place can discount less, probably much less. Its balance sheet and commercial infrastructure are operating assets in themselves.

This is why M&A, if it happens, probably starts quietly. More volume under offtake. A strategic cheque. A distribution agreement. Vendor financing with sharper terms. A partner that wants to get closer before the market understands why. If that sounds familiar, it should. Atlas already brought in an undisclosed strategic investor in the October 2025 financing. Management said that investor’s interest in Atlas and Great Atlantic aligns with its own long-term strategic objectives. I would not turn this into a takeover thesis, but I have read enough headlines like this to know it belongs in the distribution.

In North American salt, that would hardly be unprecedented. The sector has consolidated before. K+S sold its Americas salt business, including Morton Salt and Windsor Salt, to Stone Canyon Industries Holding, Mark Demetree and Affiliates for US$3.2 billion at about 12.5x EBITDA.108 Operating salt assets with customers, logistics, and cash flow have attracted real strategic capital. Great Atlantic is not there yet. But that is exactly the point: the closer Atlas gets, the more it starts looking like something the industry already knows how to buy.

When M&A

The law is the same for shareholders and acquirers: the more Atlas de-risks, the more expensive it “should” become.

Before project financing, the buyer would be taking the whole problem: financing, construction, and execution. That can happen, but only for a buyer strategic enough to want control of the asset before anyone else, and willing to carry the risk to get it.

Once a credible financing package exists, the door opens to more buyers. After FID and the first decline work, the negotiation changes again. A mining operator can then look at the asset and say: we know how to build this. At that point, every meter of decline that behaves as expected should reduce the discount a buyer can demand.

After first salt, the asset becomes much easier to buy, but also much harder to steal.

That is where M&A becomes more interesting for shareholders. Before production, an acquirer is still asking to be paid for the risks shareholders chose to underwrite themselves. A bid at that stage can crystallize value early, but it can also take the trade away before shareholders have been paid for underwriting the hardest risks. The buyer gets to hide the upside behind “remaining uncertainty.” I am not interested in having my alpha buried inside someone else’s risk memo.

After first salt, the discussion changes. The mine exists, the salt reaches surface, and the remaining value is no longer just project risk collapsing. From there, an acquisition is priced more around the buyer: its operating platform, synergies, and the usual industrial logic. The risk discount has shrunk. The buyer can still argue, because buyers always argue, but it becomes much easier to make the buyer pay for part of the synergies.

In short, timing changes valuation. That is why I do not think an acquisition before production would be the best outcome for Atlas shareholders. My job is to take risk and get paid for it. I do not want another company taking the setup too early, then paying me with a discount dressed up as prudence.

But my opinion will barely matter. Management’s will.

Management’s Take

Talking about “management” as one block would be misleading.

Start with Peterson. His line on M&A was clear enough: “We’re focused on building this thing and then discussions [about M&A] will emerge from that. I have no doubt.” That is the right posture: build the mine, make the project work without a buyer, then, if a buyer comes, negotiate from strength.

Nothing revolutionary. He does not close the door, and he does not open it wide enough to invite a lowball. But the M&A angle is clearly in his head. After hearing that answer, I would assign a higher probability to an eventual strategic discussion than I did before.

If that moment comes, Peterson will be the person responsible for extracting value from the buyer. That’ll be his job.

Then there is the elephant in the room: Vulcan Minerals.

Vulcan remains the anchor shareholder, and its CEO, Patrick Laracy, remains the gravity in the room. Through Vulcan, his personal stake, the board history, and the royalty, he is tied to Atlas in more than one way. Most of the time, that is alignment. A higher Atlas share price benefits him directly. A higher takeout price benefits him directly. A financing done later and at a higher price benefits him directly.

Good. But there is always a “but.”

Vulcan also has the 3% Net Production Royalty to protect in a change-of-control negotiation. A buyer may care about buying out the royalty almost as much as buying the equity. Or it may accept the royalty and reduce the premium. Either way, the deal is not only about Atlas shareholders selling their shares.

This is the one place where Vulcan’s alignment can become less clean. Vulcan wants a high Atlas share price, but it also wants to preserve or maximize the value of the royalty. Those two objectives should usually point in the same direction, but they do not have to. A structure that maximizes Vulcan’s total value through the royalty may not be exactly the same structure that maximizes value for minority shareholders through the equity.

I do not think this is the most likely problem. Atlas shareholders would still have a say in most change-of-control structures, whether through a vote or a tender decision. The board is not only Vulcan. Peterson, Howe, and Kelly matter. And the royalty is already inside the UFS economics, so this is not a hidden bomb under the NPV.

Either way, the negotiation is not as simple as “what is Atlas worth?”

Call it the cost of having the people who found the asset still sitting around the table.

Signals to Watch

First, the obvious: rumors are cheap. In a market this obscure, they are usually worse than cheap. They create the illusion of information.

The first signal to watch is the undisclosed strategic investor. That box is already partly checked. If that investor increases its position, or if other actors in the same category appear, the probability of a future strategic transaction goes up.

The second signal is contract architecture.

Every serious contract Atlas signs, and every MOU it converts, changes the M&A map. A binding Scotwood agreement would validate retail demand, but it would also give Scotwood a stronger reason to move closer to the asset, while making the project less clean for a buyer that wants full control of the retail channel. The same logic applies to port access, logistics, vendor financing, prepayments, strategic equity, and offtake.

In M&A, the first bid often starts as something more boring: volume, capital, logistics, or a right buried in the paperwork.

And yes, there are already early signals. The strategic investor. The non-binding MOUs announced years before production. The fact that several counterparties are willing to spend time and credibility around a mine that will not produce before 2030. Atlas is the kind of asset that should interest a lot of people in the sector. But these are only necessary conditions for M&A, not sufficient ones.

I could keep speculating, but the only point that matters is simpler: M&A is neither necessary nor sufficient for Atlas shareholders to make money. It is just another path. Potentially a very good one, depending on timing, price, and who gets to keep the synergies. But the thesis does not need it.

12. My Final Take

Most investors will analyze Atlas Salt through the UFS and the assumptions embedded in it.

They should. That is the official file. That is where the reserve base, the CapEx, the operating cost, the mine plan, and the C$920M after-tax NPV live. But the UFS answers a lender’s question: can this project be built and repay capital under defensible assumptions?

I am an investor, so my question is different: across the most probable range of outcomes, from very good to very bad, what is the present value of my share?

Answering that question forced me to challenge several assumptions inside the UFS, and that is where I found the hidden value. SLR’s conservatism is my opportunity. The salt price used in the UFS is far below recent market evidence. The assumed product mix looks conservative as well, which means the margin assumption is probably conservative too.

Those two variables influence almost every cash flow the mine will generate, from the first year of production to the last. They are far more consequential than a delay, a CapEx overrun, or the final financing structure, yet they are buried inside hundreds of pages of technical work, treated almost like anecdotal assumptions.

There is value to extract, and Atlas has people who know how to extract it, with every incentive to do so.

Construction risk is also limited compared with most peers, and this is starting to show in the financing file. The theory is not yet the practice. But the fact that Atlas is targeting 60% senior debt, while already having announced a non-binding financing MOU with Sandvik, is a large clue.

Put differently, I think the current valuation is pricing in a level of risk that is materially overstated.109

I have seen this kind of alpha before in micro caps, buried under the unknown and inside the assumptions of an official study. Rarely at this scale. It helps that Atlas operates in a sector unknown to 95% of investors and ignored by most of the remaining 5%.

I am a shareholder, and I intend to remain one. I am willing to hold through the full mine life, unless the market offers me an absurd valuation before then. Of course, I will update my thesis with every new piece of information, and I will sell if the assumptions that brought me here prove wrong.

I will keep sharing my analysis of Atlas Salt on Substack for as long as I remain a shareholder.

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13. A Better Way to Play the Setup

Being a shareholder of Atlas Salt is only one way for me to play this opportunity.

There is another way to play the same underlying situation, with objectively more upside, objectively less risk, but a risk profile that is… different.

I know that may sound bold. But I have the math on my side.

This is literally an opportunity inside an opportunity, and I am pretty sure very few investors have found it. Fewer, in any case, than those who have found Atlas Salt.

The full thesis is here, and it will only be available to paid subscribers. From now on, I will publish most of my investment thesis behind the paywall.

This Atlas Salt deep dive was a preview, meant to give you an idea of the quality of the work you get with a paid subscription.

The introduction is free to read, and it might help you decide whether the full piece is for you.

If you have any questions or comments, the comment section and my DMs are open.

Take care,

Flo
Undiscovered Compounders

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For good reason: I was laying the foundations for what this newsletter is going to become.

My job is to turn over rocks. To analyze companies obsessively until I find one that appears genuinely exceptional, then take it apart from top to bottom until I understand it better than almost anyone else.

That is the direction Undiscovered Compounders is going to take.

I will now publish my investment theses on the exceptional companies I find: small caps and micro caps buried in obscurity, each with its own dose of alpha.

The idea is simple. Investors want alpha. My job is to find it. And I am going to charge for the work.

But before asking anyone to pay, I need to show what the work is worth.

That is the point of these past few weeks of silence.

On Saturday, I will publish 2 pieces.

1. The first is an investment thesis on a company that is probably the best risk/reward setup I have seen in my career. It’s 40,000 words. Around three and a half hours of reading.
   I detailed everything: the market, the project, the numbers, the valuation, the risks, the downside, the upside, every assumption I could check, and every place where I could be wrong.
   I spent hundreds of hours on this thesis. After that work, and the feedback I received from people I trust, I am comfortable saying this is the kind of research you rarely find on Substack.
   That piece will be free.

2. The second piece is a better way to play the same setup. Objectively better, but with a different risk profile. It rests on the first thesis, which already does the heavy lifting. So this one is only 8,000 words.
   It’s a setup inside the setup. And it is a good example of the kind of alpha that can still be found when you look where very few investors are looking.
   That piece will be behind the paywall.
   

The free side of this newsletter will remain serious. It has to. It’s where trust is built. But paid subscribers will get the deepest company research and most of the alpha opportunities I find.

I can’t promise a fixed frequency of investment theses. Turning over rocks is too messy for that.

But now that my investing work and this newsletter overlap almost entirely, I can promise this: about 90 hours a week spent looking for alpha, with the best of what I find turned into publishable work.

This newsletter is only the first step in something larger.

I am building with a time horizon measured in decades, and the past month and a half was spent laying the foundations for that.

But one thing at a time.

For now, the point is simple: the reputation I am building is my best asset. I intend to protect it, and build everything around it.

I will try to prove that on Saturday.

Take care,
Flo

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The marks left by the climb up Mount Stupid, the fall into the Valley of Despair, and the slow walk up the Slope of Enlightenment are easy to spot. The precision of the vocabulary. The pauses at the right moments. The disarming honesty about their own limits.

In investing, those signals are gold. And a trap.

Let me tell you what happened to me.

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A Clever Guy

There’s a fellow investor I talk with regularly about investing. Let’s call him John. I know John in person. So I can honestly say he radiates intelligence. In his words, but also in his eyes. Two seconds are enough to guess that his genetics gave him a very efficient neural architecture. Same thing on temperament. He’s no Buffett, but he’s deeply composed, quick to delay gratification. The kind of guy who doesn’t flinch when his portfolio does.

Recently, we were discussing a microcap in the commodities sector, one John knows inside out. The position is a significant part of his portfolio. I listen carefully. I ask questions, and the guy has answers. Good enough that I decided to dig into the name on my own.

The company is a royalty business: it provides cash and its own shares (incentives, the whole package) in exchange for a future cut of the counterparty’s revenue. Fair enough, it fits my thesis that commodities will outperform in the coming years, and it’s a cash-flow business model, which isn’t that common in the sector.

A few days later, I open the MD&A. And very quickly, something smells off. The deal quality, first of all, is mediocre at best. Most of the counterparties are pre-revenue (so no cash flow on those deals), and a few carry going concern notes. On top of that, the company’s cost of capital is high: a structural disadvantage against the majors, who raise capital far more cheaply. One hour in, I knew the name didn’t deserve more of my time.

Still, I’m a bit stunned. The company John pitched me is well below his usual bar. Probably the worst one, actually. And no, dear “value” investors, it doesn’t even have the excuse of being cheap. I’d even call it overvalued.

I walk away from this analysis in complete cognitive dissonance: my read of the company on one side, my read of this good, maybe very good, investor on the other.

Here We Go

A few weeks later, I catch up with him. You probably expect a bloody confrontation, but reality is more sarcastic. In the meantime, the stock has doubled. What was I supposed to say? “Hey John, I spent an hour on company X, it’s honestly a bad business, I’m not sure how you got into it. And calm down, the 2x doesn’t count: judge the bet, not the result.” Obviously not.

But I push back, carefully. I raise my concerns one by one. And of course, he has an answer for each of them.

The bad deals? Just the price of admission. For now, only two major deals anchor the company; the rest are pure optionality, “free lottery tickets”. The cost of capital? Backed by two well-known investors who came in before the IPO and refinance whenever needed, which means the real cost of capital is low. The overvaluation? I’m missing the point. The company signs deals the majors don’t even compete for. That means a pipeline with no competitors, and counterparties with no real incentive to negotiate hard.

Every argument unpacked, every point explained. He knows his subject, and believe it or not, I walk away convinced. I know from experience that sometimes, the best setups are the ones whose first layer is ugly enough to hide the prettier layers underneath.

This time I don’t wait. I start digging the same day. Two days later, I’m more stunned than before. The company isn’t just worse than I thought, it’s worse in ways I hadn’t looked for.

First, the contracts. The company signs deals across multiple countries, each with its own legal framework. In some jurisdictions, the obligation to honor the royalty sits far below other creditor claims. Translation: in many distress scenarios, those deals are close to worthless.

Then the CEO. He takes a salary that’s astronomical for a company this size, while holding a small equity stake. He isn’t even a key man: he doesn’t draft the contracts, he doesn’t have a deep network of potential counterparties. Even worse, a few years earlier he had created a nearly identical company that went bankrupt.

To drive the nail in, those big investors who have backed the company from the start have a track record of taking large positions in names in the sector and averaging down all the way to bankruptcy.

No is too weak a word. On top of that, I have the bitter taste of having wasted my time.

Here We Go Again

When I reanalyze the situation, the cognitive dissonance is strong enough to give me a migraine. It didn’t take me that long to see all of this, so there’s no doubt John is aware of it too. But I have absolutely no idea how he got past it. I even considered that he might be pulling a prank from the start. Unfortunately, too elaborate to be plausible.

Round two, postponed. I haven't talked to him since.

But the ending isn't that disappointing. Remember, reality is funnier than that: the stock has doubled again since our last conversation. That’s a 4x in a few months. And I’m the one who has to tell him his company is rotten. I have no idea how to approach the next conversation. But I’ve at least walked away with one lesson.

Before this story, if Buffett had called me saying, “here’s my best idea, I can guarantee you 50% a year if you hold for five years,” I would probably have done less research than if anyone else had pitched it.

Once you’ve learned to ignore the majority, it becomes all the more tempting to give weight to the people you respect. Yet most borrowed convictions are borrowed without you knowing it. Only time and volatility reveal what they really were: borrowed.

It doesn’t matter how smart or how accomplished the person in front of you is. You never know all the hidden reasons behind a decision: the constraints, the assumptions, the path taken to get there.

Their best idea can be your worst.

Take care,

Flo

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I give you some money, a crystal ball, and a time machine.

The rules. Each round, you land on a random date between 2008 and 2022.1 You’re shown the front page of the Wall Street Journal from the next day (prices blacked out; it’s a game, not a cheat). You read. You bet on the S&P 500, on 30-year Treasuries, on both, or you skip the round. Maximum leverage allowed: 50x. You close your position at the next day’s close.

15 rounds. 45 minutes. Go.

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I found 40. Here they are.

1. Reason-Respecting Tendency

You want to ask someone for something and maximize the odds they say yes. Tell them why. That’s it.

The advice could stand on its own. But humans are more… surprising than that. The probability increases even when the reason makes no sense.

In 1978, psychologist Ellen Langer ran a study where researchers tried to cut in line at a university copy machine using three different phrasings. Here are the results:

• Simple request: “Excuse me, I have 5 pages. May I use the Xerox machine?” → 60% compliance

• Request + real reason: “…because I’m in a rush” → 94% compliance

• Request + nonsense reason: “…because I have to make copies” , completely tautological, everyone is there to make copies → 93% compliance

The real reason and the nonsense reason are virtually identical in effect. Replications showed weaker results for nonsense reasons, but still consistently higher than no reason at all.

But still, what a result!

It’s rare for Charlie to cite a study to support his point. But when he does, he picks well:

“Unfortunately, Reason-Respecting Tendency is so strong that even a person’s giving of meaningless or incorrect reasons will increase compliance with his orders and requests. This has been demonstrated in psychology experiments wherein “compliance practitioners” successfully jump to the head of the lines in front of copying machines by explaining their reason: “I have to make some copies.” This sort of unfortunate byproduct of Reason-Respecting Tendency is a conditioned reflex, based on a widespread appreciation of the importance of reasons. And, naturally, the practice of laying out various claptrap reasons is much used by commercial and cult “compliance practitioners” to help them get what they don’t deserve.”
— Poor Charlie’s Almanack, Peter D. Kaufman

2. Human = Gamed

You probably know Charlie’s famous line: “Show me the incentive and I’ll show you the outcome.” But that's just the punchline. The reasoning behind it is what makes it powerful.

His reasoning goes like this:

• Every human system (family dynamics, tax codes, traffic laws) is built on arbitrary rules.

• Each person will interpret and evaluate those arbitrary rules differently.

• And from those interpretations, incentives emerge.

For example: I know I’m supposed to stop at a red light. But it’s 2 AM, no one’s around, and I won’t get caught. I run the light.

Scale that logic to every participant in every system, and you get Charlie’s premise:

“All human systems are gamed, for reasons rooted deeply in psychology, and great skill is displayed in the gaming because game theory has so much potential.”
— Charlie Munger, University of California Speech at Santa Barbara, 2003

People are not “intrinsically dishonest or bad”, it’s just that the rules are arbitrary and the incentives to bend them are not.

3. Cognitive Eccentricity

You probably know the famous anecdote about Charles Darwin: whenever he encountered a fact that contradicted his ideas, he would write it down immediately in a notebook, because he knew his brain would do everything in its power to forget it or distort it.

150 years later, cognitive psychology has obviously proven Darwin right. Our brains are wired to seek information that confirms our priors and reject what refutes them. Ironically, this is an adaptive reflex that served our evolutionary survival well. In a world where changing your mind about which berries are poisonous could kill you, stubbornness was a gift.

Where Charlie brings his wisdom is in how far this idea can carry someone. Doing what others are cognitively unwilling to do leads to outsized results: actively seeking to contradict your own ideas, being disliked without flinching, persisting through a string of failures, sitting still and doing nothing for decades. These are cognitive overrides, and the people who master them tend to end up in the history books, for better or for worse.

Ironically, Charlie Munger is himself one of the best examples of a “cognitive eccentricity” success story.

4. The Tolstoy Effect

Tolstoy observed that even the worst criminals don’t see themselves as bad people. They end up believing either that they didn’t commit their crimes, or that given the pressures and disadvantages of their lives, their behavior was understandable and forgivable.

Nobody is the villain of their own story. Charlie turns this observation into a principle:

“The Tolstoy effect, where the man makes excuses for his fixable but unfixed bad performance is bad character and tends to create more of itself, causing more damage to the excuse giver with each tolerated instance.”
— Poor Charlie’s Almanack, Peter D. Kaufman

Charlie does offer an antidote:

“The best antidote to folly from an excess of self-regard is to force yourself to be more objective when you are thinking about yourself, your family and friends, your property, and the value of your past and future activity.

This isn’t easy to do well and won’t work perfectly, but it will work much better than simply letting psychological nature take its normal course.”
— Poor Charlie’s Almanack, Peter D. Kaufman

5. Psychology of Human Misjudgement

Life is a human game. Practical psychology is the rulebook of that game, a rulebook that isn’t taught in school. One of Charlie Munger’s biggest learning regrets, by his own admission (one he spent the rest of his life correcting).

This discipline was so important to him that he did something he never did for anyone else: he gave one Berkshire Hathaway Class A share to Robert Cialdini, author of Influence: The Psychology of Persuasion, for ‘his contribution to mankind’ (roughly $250,000 at the time).

So the most useful and practical part of psychology-which I personally think can be taught to any intelligent person in a week-is ungodly important. And nobody taught it to me, by the way. I had to learn it later in life, one piece at a time. And it was fairly laborious. It’s so elementary though that, when it was all over, I just felt like a total horse’s ass. And yeah, I’d been educated at Caltech and the Harvard Law School and so forth. So very eminent places miseducated people like you and me. The elementary part of psychology-the psychology of misjudgment, as I call it-is a terribly important thing to learn.
— Poor Charlie’s Almanack, Peter D. Kaufman

I have a background in psychology, and I can say that not a single day has passed without it being useful to me. Definitely worth a few hundred or thousand hours of your life. Subscribe and let me do some of the work for you.

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6. Availability-Misweighing Tendency

Here, Charlie is generous; he gives both the problem and its antidotes:

“Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it... An idea or a fact is not worth more merely because it is easily available to you.”
— Poor Charlie’s Almanack, Peter D. Kaufman

The main antidote to miscues from Availability Misweighing Tendency often involves procedures, including use of checklists, which are almost always helpful.

Another antidote is to behave somewhat like Darwin did when he emphasized disconfirming evidence. What should be done is to especially emphasize factors that don’t produce reams of easily available numbers, instead of drifting mostly or entirely into considering factors that do produce such numbers.

Still another antidote is to find and hire some skeptical, articulate people with far reaching minds to act as advocates for notions that are opposite to the incumbent notions.
— Poor Charlie’s Almanack, Peter D. Kaufman

The few times Charlie mentioned this tendency, he always used everyday examples, never investing. Yet it’s one of the most common and most costly mistakes in finance. I wrote a deep dive on exactly that:

7. Granny’s Rule

Granny’s Rule is the requirement that children eat their carrots before they get dessert.

Applied more broadly: do the unpleasant tasks before the pleasant ones. Pure behavioral engineering.

It’s a simple idea, but Charlie took it very seriously.

“‘Granny’s Rule’ provides another example of reward superpower, so extreme in its effects that it must be mentioned here. You can successfully manipulate your own behavior with this rule, even if you are using as rewards items that you already possess! Indeed, consultant PhD. psychologists often urge business organizations to improve their reward systems by teaching executives to use “Granny’s Rule” to govern their own daily behavior.”
— Poor Charlie’s Almanack, Peter D. Kaufman

Now, if I hadn’t told you this was Charlie Munger, you’d probably think I was being condescending. Eat your carrots before dessert, really?

And that’s precisely what makes Charlie Munger’s mental models so popular. Here’s someone who achieved more than most of us will ever aspire to, explaining that ideas this simple actually work. Ideas we tend to dismiss precisely because they’re simple, when they’re not backed by a lifetime of success to vouch for their quality.

That dismissal is a massive mistake. The quality of a simple idea should not depend on who said it. And that’s one of the traits that made Charlie who he is: the ability to recognize a good idea regardless of where it comes from, and apply it across a wide range of situations. His pool of good ideas was therefore larger than most people’s, and the arsenal he built from it compounded faster.

So let me use this Granny’s Rule to offer a mental model of my own using Charlie as an example: judge the quality of an idea independently of who said it.

8. Two-Track Analysis

Charlie believed almost every decision should be analyzed from two angles, the rational and the psychological:

“Personally, I’ve gotten so that I now use a kind of two-track analysis. First, what are the factors that really govern the interests involved, rationally considered? And second, what are the subconscious influences where the brain at a subconscious level is automatically doing these things-which, by and large, are useful but which often misfunction?

One approach is rationality-the way you’d work out a bridge problem: by evaluating the real interests, the real probability, and so forth. And the other is to evaluate the psychological factors that cause subconscious conclusions-many of which are wrong.”
— Poor Charlie’s Almanack, Peter D. Kaufman

I’ll add a third track, one that’s often forgotten and too easily dismissed as irrationality: constraints.

Constraints of time, means, motivation, interests, power, etc. When a decision seems irrational, asking what constraints might have caused that behavior is often wiser than stopping at “irrationality.” Nine times out of ten, the person wasn’t being irrational, they just didn’t have the options people think they had.

9. Survival of the Simplest

“Take a simple idea, but take it seriously.”
— Charlie Munger

This one is special. It’s probably one of Charlie’s most insightful mental models, but it suffers from the very defect that makes it so insightful in the first place: it’s too simple. Ironically, this mental model is itself a simple idea, worth taking seriously.

Our brain doesn’t perceive reality. It perceives change. We don’t feel heat; we feel a change in heat. We don’t hear volume; we hear a change in volume. Psychophysics calls this the Weber-Fechner law: our sensitivity is proportional to the magnitude of the stimulus. The bigger the reference point, the less we notice small variations.

This wiring has a decisive consequence for decision-making: we systematically neglect small, consistent actions because they feel insignificant compared to the outcome we’re chasing.

Who invests $100 a week for 30 years to become a millionaire? Almost nobody. The action is too small relative to the goal. So people look for more spectacular paths that feel proportional to the ambition: lottery tickets, speculation, the next big thing.

Anyone who can take a simple idea with modest short-term consequences and commit to it seriously over a long period will inevitably become exceptional. An athlete, an investor, a musician.

“Think about everything in the simplest way, and act with seriousness.”
— Charlie Munger

10. N-Order Effects

When Medicare was first introduced, a panel of experts (including PhD economists) projected its cost using simple extrapolations of past data. They were off by a factor of more than ten.

New incentives changed behavior, changed behavior changed costs, changed costs changed everything downstream. Basically, they rounded Pi to 3.2 and called it a forecast.

“Too little attention is given to second order and even higher order effects. The consequences have consequences, and the consequences of the consequences have consequences, and so on.”
— Charlie Munger, University of California Speech at Santa Barbara, 2003

11. Latticework of Models

Isolated facts are dead weight. A fact only becomes useful when it’s connected to other facts through a structure (a theory, a model, a pattern). Without that structure, you’re just memorizing. With it, you’re thinking.

“You can’t really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.”
— Charlie Munger, Talk at USC Business School, 1994

Charlie estimates he uses about a hundred models. That sounds like a lot. But most of the heavy lifting is done by a handful, borrowed from math, psychology, physics, biology, and engineering. The rest builds on top.

“You have to learn many things in such a way that they’re in a mental latticework in your head and you automatically use them the rest of your life. If many of you try that, I solemnly promise that one day most will correctly come to think: ‘Somehow I have become one of the most effective people in my whole age cohort.’ And, in contrast, if no effort is made toward such multidisciplinarity, many of the brightest of you will live in the middle ranks, or in the shallows.”
— Charlie Munger, USC Commencement Speech, 2007

I’ve started building this latticework in public: 50 mental models extracted from across all disciplines. 15 are published, 35 to go. I’ll release them all at once, when everything is final. Months of work left. One inch at a time. Be there when it lands.

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12. Physics Envy

What discipline doesn’t envy the natural elegance of physics? A few variables, a few operations, an equals sign, and there it is, a beautiful formula for the history books.

But the further down the chain of causes and consequences a discipline sits, the more illusory those formulas become. Anything involving human behavior falls into that category. Economics obviously qualifies. And yet it’s probably the discipline most jealous of physics. This isn’t a new problem: a century ago, Keynes was already making the same reproach to his peers.

“To convert a model into a quantitative formula is to destroy its usefulness as an instrument of thought.”
— John Maynard Keynes

Charlie Munger was one of the most vocal critics of this physics envy in economics, and he never missed an opportunity to remind people of it throughout his life.

Envy has never built anything, in academia or anywhere else.

13. Overweighing-What-Can-Be-Counted

Charlie said it better than I could:

“You’ve got a complex system and it spews out a lot of wonderful numbers that enable you to measure some factors. But there are other factors that are terribly important, [yet] there’s no precise numbering you can put to these factors. You know they’re important, but you don’t have the numbers. Well practically everybody (1) overweighs the stuff that can be numbered, because it yields to the statistical techniques they’re taught in academia, and (2) doesn’t mix in the hard-to-measure stuff that may be more important. That is a mistake I’ve tried all my life to avoid, and I have no regrets for having done that.”
— Charlie Munger, University of California Speech at Santa Barbara, 2003

This is exactly how Wall Street operates. The entire industry is built on what can be measured, and almost structurally blind to what can’t. Culture, management quality, incentive alignment, optionality, no Bloomberg terminal spits those out. Which is precisely where the edge is.

14. Surfing

Sometimes, winning is just a matter of surf: spot a wave, position yourself, and ride it.

According to Charlie, these skills are all the more essential in an era where technological revolutions chain together.

“When technology moves as fast as it does in a civilization like ours, you get a phenomenon which I call competitive destruction… You either get into a different business or you’re dead—you’re destroyed… And when these new businesses come in, there are huge advantages for the early birds. And when you’re an early bird, there’s a model that I call “surfing”—when a surfer gets up and catches the wave and just stays there, he can go a long, long time. But if he gets off the wave, he becomes mired in shallows…”
— Charlie Munger, talk at USC Business School 1994

He said this in 1994. 30 years later, the waves have only gotten bigger. And coming from a man who built his fortune on patience, that's not nothing.

15. The Social Cost of Good Decisions

Saying no when everyone around you is saying yes has a cost that most people aren't willing to pay.

“A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc. Just avoid things like AIDS situations, racing trains to the crossing, and doing cocaine, etc., develop good mental habits… If your new behavior earns a little temporary unpopularity with your peer group then the hell with them.”
— Poor Charlie’s Almanack, Peter D. Kaufman

By choosing your peer group well, you can reduce the social cost, or even turn it into a gain. Which makes it a huge incentive to choose your peer group carefully, even if it means changing it entirely.

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16. The Human Brand Moat

A brand reduces friction. You trust it, so you stop searching. Coca-Cola, Apple, Costco, you buy without thinking twice.

Charlie argued that the same moat applies to people, and must be actively built:

“You want to deliver to the world what you would buy if you were on the other end. There is no ethos in my opinion that is better for any lawyer or any other person to have. By and large, the people who’ve had this ethos win in life, and they don’t win just money and honors. They win the respect, the deserved trust of the people they deal with. And there is huge pleasure in life to be obtained from getting deserved trust.”
— Poor Charlie’s Almanack, Peter D. Kaufman

17. Business > Manager

2026 will be a big year for IPOs, or, as some on Wall Street call them, “It's Probably Overpriced”, and most of them will be sold on the founder's story.

Charlie's warning has rarely been more relevant:

“Averaged out, betting on the quality of a business is better than betting on the quality of management. In other words, if you have to choose one, bet on the business momentum, not the brilliance of the manager.”
— Charlie Munger, Talk at USC Business School, 1994

18. The Cancer Surgery Formula

When something in your life is a mess: a career, a relationship, a set of habits, a portfolio, the basic instinct is to try to fix everything. According to Charlie, the wiser move is the opposite: find what's sound, and cut away everything else.

It’s the mirror image of inversion: instead of asking “what should I add to make this work?”, ask “what should I remove so that what already works can breathe?”

“They [GEICO] look at this mess. And they figure out if there’s anything sound left that can live on its own if they cut away everything else. And if they find anything sound, they just cut away everything else. Of course, if that doesn’t work, they liquidate. But it frequently does work.”
— Charlie Munger, Talk at USC Business School, 1994

At its core, the Cancer Surgery Formula is just a concrete application of one of Charlie's deepest convictions:

“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
— Charlie Munger, Berkshire Hathaway Meeting 2001

Cancer surgery is just consistent non-stupidity with a scalpel.

19. The Whirlpool Principle

“Some Scandinavian canoeists succeeded in getting through all the rapids of Scandinavia, and they thought they would continue their success by tackling the big whirlpools in northwest America. The death rate was one hundred percent.”
— Charlie Munger, Harvard School Commencement Speech, 1986

They died because they assumed the skill they had was the skill they needed.

Charlie adds a second layer: the canoeists went as a group. Each one’s confidence reinforced the others’. In this example, social proof turned individual overconfidence into collective suicide.

“A big whirlpool is something you want to avoid. And I think the same is true about intense ideology, particularly when your companions are all true believers.”
— Charlie Munger, Harvard School Commencement Speech, 1986

Charlie spent so much of his life denouncing ideology that I don't even need to look for another quote. He's already said it all.

20. Learning as a Categorical Imperative

This is one of the purest forms of mental model there is, a heuristic: a way to make an optimal decision very quickly and at minimal cost.

No more hesitating between leisure and learning, just learn. It’s a moral duty. A “universal law,” as Kant would say.

Of course, it’s just a cognitive trick, a way of dictating to ourselves the behavior to follow without thinking. But it’s a trick that depends primarily on our willingness to make it work (or not), which is pretty remarkable when you think about it.

Wisdom acquisition is a moral duty.

Charlie left the perfect ending himself:

“I hope these ruminations of an old man are useful to you. In the end I’m like old Valiant-for-truth in The Pilgrim’s Progress:

My sword I leave to him who can wear it.”

Rest easy, Charlie. The sword found hands.

Take care,

Flo

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Half of Charlie's mind is here. The other half is one click away:

• ChatGPT, rate this company knowing it has a 92% chance of beating its targets.
  Score: 5.3/10.

• ChatGPT, rate this company knowing it has an 8% chance of missing its targets.
  Score: 3.6/10.

You read that right, both prompts say the same thing: same company, same probability. Only the wording changed. But the response shifted by 44%. The AI did exactly what you would have done: it reacted to the words, not the numbers.

That was one bias in one model. Researchers1 stress-tested every major model: GPT, Claude, Gemini, LLaMA, Mistral, etc. 48 models, 11 biases2 tested, 26,000+ observations.

Framing was only the beginning. Some biases don’t just distort scores; they reverse decisions entirely.

And no, upgrading to a more powerful model won't save you. But the researchers found what will.

Read more

“That one. Get him out. His clothes are too shabby.”

The boy obeys. He rises, steps out of the frame, and watches the rich kids hold their pose. His face burns, but he keeps it still. No protest. No tears.

He makes himself a promise: one day, he’ll be so rich that the greatest painter in the world will paint his portrait.

That kid’s name is John Davison Rockefeller.

He kept the promise. He became the richest man of his era.

Then he did something rarer than getting rich: he wrote down the operating system.

38 unfiltered letters to his son. Everything Wall Street, Harvard, and polite society would never teach him.

I read all 38.

Here’s what the richest man in American history teaches us, in words that were never meant to be public.

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“The Quickest Way to Harm Someone”

Rockefeller’s edge begins with an inversion.

Instead of asking how to build an empire, he asks what prevents someone from building one.

His answer fits in a single sentence, the very first lesson he passes to his son:

“The quickest way to harm someone is to give them money.”

His evidence is hard to argue with.

A study conducted in Massachusetts on 17 wealthy families. Result: none of their children ended life wealthy. 0 out of 17.

In Philadelphia, a joke made the rounds:
— He’s a self-made millionaire.
— Self-made? Sure. He inherited 20 million… and he’s got 1 left.

The joke stuck because it pointed to something real: wealth shields you from consequences. And without consequences, no resilience, judgment, or skill is ever formed.

That is why rich children so often grow up unprepared: they have been protected from the very pressures that make a person dangerous.

Urgency breeds ingenuity. Comfort breeds decay. And in that comfort, empires die, or never get built in the first place.

It’s not out of greed that Rockefeller hides his fortune from his own children for most of their lives, but out of love.

And it’s out of clarity that he lays down, in that very first letter, the principle that runs through the next 37: wealth protects nothing. It creates the conditions for its own erosion, unless it’s met with a discipline that contradicts it at every turn.

Rockefeller reduces the antidote to four terms: Dream + Failure + Challenge = Success.

Simple on the surface. Except Rockefeller does not give any of these words the meaning we usually assign to them.

And it’s in the gap between his meaning and ours that his greatest lessons live.

“I believe that faith is the father of success.”

For Rockefeller, dreaming is anything but passive.

“They mistook faith for hope.”

Hope is passively waiting for something good to happen.

Faith is the certainty of who you are becoming, and the willingness to act in alignment with it. It actively produces plans, methods, and decisions.

Rockefeller draws this distinction from dozens of conversations with defeated entrepreneurs. When asked to explain their downfall, they all ended up admitting the same thing:

‘To be honest, I didn’t think it would work.’
‘I felt uneasy before I started.’
‘In fact, it’s not too surprising that this has failed.’

Hence his conclusion, perhaps the most important one across all 38 letters:

“Disbelief is a negative force. When you disagree or have doubts in your mind, you will come up with various reasons to support your disbelief. Suspicion, disbelief, the tendency to fail subconsciously, and the lack of desire to succeed are the main causes of failure.”

Doubt manufactures failure in the background, producing hesitations, excuses, and half-measures. At the first obstacle, you suddenly have a full arsenal of reasons to quit.

The reverse is also true: confidence manufactures success.

For Rockefeller, having an unshakeable belief in yourself, faith, is the first engine of success:

“Confidence produces the attitude of believing in ‘I can do it’, and the attitude of believing in ‘I can do it’ can produce the abilities, skills, and energy. Whenever you believe that ‘I can do it’, you will naturally come up with a ‘how to solve’ method, and success is born once you successfully solve the problem.”

The order of the sequence matters: conviction → attitude → skill → energy → method → result.

Confidence is not the trophy you collect after winning. It’s the first domino.

“When I was a poor boy, I was confident that I would become the richest person in the world. Strong self-confidence inspired me to come up with various feasible plans, methods, means and techniques, and one step at a time to climb to the top of the oil kingdom.”

A poor kid who gets thrown out of a class photo, convinced he’ll become the richest man in the world. From the outside, that’s absurd. From the inside, it’s the machine that produced everything: every strategy, every acquisition, every decision.

And if conviction determines the outcome, then the size of the conviction determines the size of the outcome.

“Wealth is proportional to goals. If you have big ambitions and big goals, your mountain of wealth will rise to the sky. If you just want to pass by, you will end up in the rat race.”

“Everyone is a product of his thoughts. Thinking about small goals will lead to small results. Thinking of great goals will win great success.”

To go further than anyone, you have to aim further than anyone. It doesn’t guarantee success, but it guarantees that failure won’t be a certainty.

Have absurd goals. The cost is nearly zero. The upside can exceed anything you can imagine.

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“I am a clever loser.”

His son has just lost a million dollars on Wall Street. He’s been paralyzed for weeks. When he finally tells his father, the response cuts through everything:

“A failure does not show anything, and will not put the label of incompetency on your forehead.”

Then he goes further, explaining how he turned failure into an ally:

“I take failure as a glass of spirits. It is bitter when you drink it, yet it gives you plenty of vitality.”

“I am a clever loser. I know to learn from failures, draw success factors from my experience thru failure, and use innovative methods that I have never thought of before to start a new career.”

A “clever loser.” The expression is as deep as it is simple.

Rockefeller treats his failures as a means, not an end. Something he actively seeks out and uses to extract an advantage.

For him, the real danger is never failure itself. It’s what the fear of failure does to your ability to act.

“Once avoiding failure becomes your motivation for doing things, you embark on a path of laziness and powerlessness.”

The person who rationalizes inaction as caution silently loses every opportunity that action would have opened.

Rockefeller quotes Edison who, when asked about his 10,000 failures, replies: “I have not failed 10,000 times. I just invented 10,000 unworkable methods.”

Same reality, but the framing changes everything.

Failure is the same for everyone. What separates those who recover from those who don’t is the story they choose to tell themselves about it.

“Son, life is a great game.”

What made Rockefeller exceptional was his total commitment.

For him, half-measures are already a defeat.

“Most people fail not because they make mistakes, but because they are not fully committed.”

The status quo doesn’t exist. You’re either moving forward or falling behind.

But that kind of commitment only survives on one condition: lasting. Lasting longer than the doubt, longer than the fatigue, longer than everyone else.

“There is nothing in the world that can replace perseverance. Talent is not acceptable. Unprecedented talents abound, and geniuses who accomplish nothing is common.”

Genius impresses for a moment. Perseverance wins the game.

“Life is a great game. To win, you need to act, act again, and act forever!”

His entire life fits into his own four terms.

Dream + Failure + Challenge = Success.

Dream big enough to look ridiculous.
Absorb enough failure to become unbreakable.
Last long enough to become unstoppable.

The top doesn’t belong to the most brilliant. It belongs to whoever holds on the longest.

Keep playing,

Flo

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Hard data can make those rules visible before experience does.

Here are seven rules I wish I had learned sooner.

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Acrophobia Is a Costly Flaw in Investing

All-time highs are neither rare nor dangerous (in general):

• On a monthly basis, the S&P 500 reaches a new all-time high in 31% of months.

• Over the past 100 years, only 2.5% of those all-time highs were followed by a deep drawdown of more than 30%.

So yes, all-time highs rarely lead to disastrous outcomes. But what about the typical case?

Simple: investing at an all-time high has historically delivered returns similar to those of investing at almost any other moment over the next 2 or 3 years, and slightly better over the next 12 months.

These data are a necessary antidote to one of investors’ most common fears: acrophobia.

Trust Human Irrationality

Over an investing lifetime:

• Investing when consumer confidence is at a peak has led to an average 12-month return of 3.9%.

• Investing when consumer confidence is at a trough has led to an average 12-month return of 24.1%.

This is the clearest evidence I have seen that some of the best moments to invest are the ones that feel the worst.

And when the world makes you hesitate, this is exactly the kind of chart that helps you press the trigger.

The Circle of Life

This is how companies are born, grow, and die.

A declining company may still post positive sales growth over the next three years, but only by continuing to destroy shareholder value.

This “circle of life” is one of the most persistent patterns in investing.

Recognizing it helps separate reported growth from economic reality.

The Cycle of War

War increases uncertainty, but not necessarily risk.

In other words, war widens the range of possible paths, without always changing the long-term outcome as much as investors fear.

Historically, war has tended to bring higher inflation, higher volatility, and higher returns.

The evidence is admittedly US-centric, which limits how far it can be generalized with confidence.

But at the very least, it shows that for the world’s dominant equity market, war has often been less bearish than investors instinctively assume.

If you can withstand the volatility, war has historically come with higher raw returns.

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Value Play or Value Trap

The deeper the drawdown, the longer it takes to reclaim the all-time high, and the lower the odds that it ever does.

No comforting truth here. Just statistics every investor should study before buying a stock that is down 50% or more.

One Simple Rule That Beat Buy & Hold

Build a portfolio, then repeat the same exercise every year for 25 years: sell 20% of your positions and replace them with randomly selected stocks.

But there is one twist. Each time, you either:

• sell positions at random,

• sell your best performers,

• or sell your worst performers.

What happens next tells you almost everything about how returns are really built.

Selling your winners each year is the most reliable way to underperform buy and hold.
Selling your losers each year is the most reliable way to outperform buy and hold.

Best of all, this was tested on millions of simulated portfolios built from randomly selected S&P 500 stocks, and the result barely changes whether the portfolio holds 5 stocks or 40.

No hidden condition. No clever trick.

As so often in investing: simple, but not easy.

(Click here for a deep dive on the study)

“Even God Would Get Fired as an Active Investor”

Imagine knowing exactly what the next 5 years will look like.

You buy the best stocks, short the worst, and rebuild the best portfolio every five years over a 90-year period.

Your worst drawdown? 47%.

And if you only go long the winners, the drawdown gets even worse: 76%.

Even with perfect foresight and superhuman returns, you still get cut in half at some point.

Volatility is not an exception. It is a constant. The choice is whether to prepare for it or be ruled by it.

(Click here for a deep dive on the study.)

None of these lessons is difficult to understand in hindsight.

What is difficult is recognizing them while fear, noise, and uncertainty are still in control.

If there is any edge in this piece, it is simply this: remembering what matters before the market forces you to.

Take care,

Flo

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The wealth it destroys never shows up on a statement, which makes it hard to see, hard to study, and easy to ignore.

So I simulated millions of portfolios to pin down where opportunity cost starts, what amplifies it, and how to reduce it in practice.

Here’s what the data shows.

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The Setup

To make the results interpretable, you need the setup.

I start with the same initial universe of stocks and simulate millions of portfolios across the full sample period (2001-2025).

I then vary only a few things: portfolio size, turnover, sell rules, and what gets bought after a sale.

Everything else stays fixed: same starting list, same return paths, same horizon. Only the decision rules change.

The point is to isolate the cost of cutting compounding trajectories.

Full methodology and limitations are at the end of the post.

Where Does Opportunity Cost Actually Begin

A buy opens exposure to a range of possible futures. A sell closes that exposure.

The moment you sell, an open trajectory is replaced by a fixed outcome. Once sold, that future no longer belongs to us. That is where opportunity cost begins.

In plain terms: Opportunity cost = a better outcome that was available to you − the outcome you realized. Selling is the trigger.

The problem is that selling’s damage doesn’t show up immediately. It shows up over time, so we need to track how opportunity cost evolves.

The chart below shows the evolution of opportunity cost across millions of portfolios over 25 years.

The y-axis is logarithmic. On a log scale, a linear trend reflects exponential growth.

Yes, opportunity cost compounds.

And the sudden step-ups lay the whole mechanism bare: those jumps come from selling positions that later turned into outsized winners.

Fortunately for us, not all sales are created equal.

Why Does It Become So Destructive?

This is where things get interesting.

I simulated three types of selling behavior:

• Selling psychological losers → positions whose current price is below their average purchase price

• Selling at random

• Selling psychological winners → positions whose current price is above their average purchase price

Take a few seconds to think about it.

Beyond the potential mind-blowing effect, active engagement increases the ROI of your reading time.

Here is the result:

This is the first major finding of the simulation:

• Selling psychological losers leads to lower opportunity cost than buy-and-hold.

• Buy-and-hold leads to lower opportunity cost than selling psychological winners

Even better, in terms of performance: selling psychological losers > selling random > selling psychological winners.

In practice, great compounders tend to be found among stocks that have already gone up. Conversely, you're less likely to find them among those that have gone down.

On average, selling winners gives you a slightly higher chance of cutting off a trajectory that still had exceptional upside ahead.

That asymmetry may look small in the short run. Over long periods, it becomes brutally destructive.

This is Peter Lynch’s “selling your winners and holding your losers is like cutting the flowers and watering the weeds,” but shown here in a more systematic way.

The value of the simulation is that it ignores the subjective “reasons” investors cite for selling and focuses only on the decision rule. Across millions of portfolios, that framework already covers a huge variety of paths and outcomes.

But the mean result is only part of the story. The distribution of selling costs matters just as much:

Visually, the differences look subtle, but the consequences definitely aren’t.

• This chart shows that most sales impose only a small opportunity cost. The curves rise steeply at low levels, which means a large share of sales do relatively little damage

• But a small minority of sales are catastrophically expensive. Those extreme mistakes happen far less often when selling psychological losers than when selling psychological winners (the green and yellow curves are shifted to the right).

So the destructiveness of selling stems from the fact that a few sales are catastrophic, and selling winners increases both the frequency and the magnitude of those catastrophic errors.

A useful analogy is Russian roulette.

In investing, opportunity cost works like a game in which:

• you do not know how many chambers are in the cylinder,

• you do not know how many bullets are loaded,

• and each sale is a pull of the trigger.

Selling winners is like adding more bullets to the cylinder, and making them larger. The bad outcomes become both more frequent and more severe. Selling losers does the opposite.

But it can get even worse. In fact, it often does. And this time, you are the culprit.

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What Amplifies It?

We’ve identified the direct trigger: selling a great compounder. But two factors make that mistake more likely, and more expensive.

1) Portfolio size

A larger portfolio doesn’t just “diversify.” It increases the odds you’re holding a true compounder. Opportunity cost comes from selling one.

So I hold the number of sales constant and increase portfolio size.

The pattern is clean: as portfolio size grows, opportunity cost grows. Even without trading costs. Even by selling randomly.

Why? Because more names means more chances to own a rare winner, and then “accidentally” cut it.

That’s also why selling psychological winners gets more destructive as portfolios get larger: the “top performer” in a 40-stock portfolio is simply more likely to be a real compounder than the top performer in a 10-stock portfolio (on average, not trying to step on any toes).

One detail matters: the small “step up” for sell-worst from 5 → 10 stocks isn’t magic. With 5 sales/year, a 5-stock portfolio is basically full churn, so even “sell-worst” quickly forces you to sell winners. At 10 stocks, you can sell 5 names while still leaving the top winners untouched, temporarily at least.

But the headline doesn’t change: bigger portfolios amplify the cost of selling.

2) Selling frequency (for a fixed portfolio size)

Which brings us to the second amplifier: turnover.

This is the most striking chart in the analysis in my opinion.

Each curve says a lot, so let’s analyze them one by one.

Sell random positions

Start with the simplest case.

Each additional sale pushes performance further below buy-and-hold. In other words, each sale adds opportunity cost.

And that cost is not just financial. Every sale also consumes time, attention, and conviction, only to leave you worse off than if you had done nothing.

In the Russian roulette analogy, higher turnover means pulling the trigger more often.

At first, the damage rises quickly. Then it begins to flatten around 35% turnover (7 sales per year in a 20-stock portfolio).

The reason is simple: at high enough turnover, two opposing effects begin to offset each other. More selling creates more chances to cut off future compounders, but it also creates more chances to buy new ones. What emerges is a negative statistical equilibrium: still worse than buy-and-hold, but no longer deteriorating at the same rate.

The sell-best and sell-worst rules are, in a sense, mirror images of each other.

Sell the best position

This rule is brutally expensive from the start. Your top performer is one of the most likely places to find a stock with exceptional upside still ahead.

As turnover rises, the damage increases. But not forever. In a 20-stock portfolio, once you sell enough names, the “best remaining position” eventually becomes the worst loser.

Sell the worst position

The logic is reversed.

At low turnover, selling the worst position helps because you remove the weakest names first. As turnover rises, that benefit grows, for a while.

But even this has its limits. Once enough losers have been sold, the “worst remaining position” eventually becomes the best winner.

That is why the curves start far apart, then move closer together as turnover approaches 100%.

At that point, the sell rule matters less, because the same stocks are increasingly being sold under different labels. Replace the whole portfolio every year, and “sell the best,” “sell the worst,” and “sell random” all converge toward roughly the same outcome: persistent underperformance versus buy-and-hold.

Let’s note something important: performance typically improved when sales came from the bottom 75% of the portfolio. That fact, surprising as it is, will matter later.

The conclusion is simple: portfolio size and turnover both amplify opportunity cost.

Each additional sell is another chance to cut off a compounding trajectory.
Each additional stock is another chance to own one, and eventually sell it.

In the end, the biggest driver is what you do with your biggest winners.
And the more stocks you own, the more that decision matters.

How to Reduce It in Practice?

Let’s summarize the key findings:

• Opportunity cost is created at the moment of selling. Reallocation has limited power to offset it.

• In both performance and opportunity cost: sell psychological losers > sell random > sell psychological winners.

• The higher the turnover and the larger the portfolio, the higher opportunity cost tends to be.

• Selling winners is even more destructive in larger portfolios.

These results imply a few practical rules to minimize opportunity cost and maximize long-term performance.

I’m ranking them from least important to most important.

5) The Reallocation Trap

In a reallocation, the opportunity cost from the sale is often larger than the expected benefit from the new buy (when it isn’t a loss).

You can make a “smart” purchase and still make a terrible decision, if you funded it by selling the wrong stock.

Prioritize your reasons to sell over your reasons to buy.

4) Reduce Portfolio Size

A well-built portfolio of 10 stocks can already capture most diversification benefits without sacrificing performance.

Beyond 15 names, you often drift into “diworsification”: diluted conviction and performance disguised as prudence.

More stocks doesn’t mean less risk. It means more ways to make the one mistake that matters.

3) Build a System That Limits Turnover

Most lifetime performance comes from a few extreme winners.

Those stocks are rare, and they require time.

Every additional sale is another chance to cut a compounding trajectory before it does its job.

Reduce the number of sell decisions. Period.

2) Sell Your Losers Ruthlessly

In the simulation, losers were sold each year and defined in the simplest way possible: the stock trading furthest below its average cost.

Crude rule, but powerful effect.

You’re far less likely to find a future great compounder among your current losers, and more likely to find one in what replaces them.

And remember: performance improved almost every time a sale came from the bottom 75% of the portfolio. “Loser” is a wide category here. In practice, it basically means: anything that isn’t one of your true winners.

Sell your losers. Let your capital search for better futures.

1) Protect Your Biggest Winners

If you only remember one thing, make it this:

Selling your winners, those farthest above your cost basis, should be exceptional. Maybe even never, as a routine.

Losses are capped at -100%. Gains have virtually no ceiling.

One true compounder can pay for a lifetime of losers, including stocks that looked like winners at some point and then weren’t.

The most telling result in the analysis was brutally simple: the best setup by far was effectively selling everything each year except the top 5 performers.

It's not a magic rule, but the message is clear.

You don’t get rich taking profits. You get rich by not touching the winners.

Take care,
Flo

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Full Methodology and Biases

This analysis uses a deliberately simplified simulation framework designed to isolate one thing: the opportunity cost created by selling.

The simulation starts from a fixed initial cohort of stocks. The cohort includes every stock with a valid year-end price at the end of 2000, and all portfolios are formed from that same starting universe. No late entrants are added later. The sample then runs from 2001 through 2025 using annual data only, with each year represented by the last available price of that year.

Each simulated portfolio is equal-weighted at inception. Portfolio sizes vary across scenarios, and millions of portfolios are randomly drawn for each configuration. A portfolio is then evolved over the full sample period under a specified decision rule. The key variables changed across simulations are portfolio size, turnover, the sell rule, and the buy rule. Everything else is held constant: same starting universe, same return paths, same horizon.

The purpose of this structure is not to mimic real life perfectly. It is to make the effect of selling decisions measurable.

Portfolio evolution

At the end of each year, portfolio positions are repriced using the year-end price of each stock. If a stock later disappears from the dataset, its value is frozen from that point onward rather than forcing a delisting assumption or a terminal loss. This avoids injecting a separate modeling choice into the results. When replacement is impossible, cash is used as a fallback.

All rebalancing takes place only within the initial cohort. In other words, the simulation does not reopen the universe each year and does not allow the purchase of stocks that were not already in the starting set. This is intentional: it keeps the analysis focused on the cost of cutting existing trajectories rather than on the benefits of discovering new names.

Sell rules

Three sell rules are used:

• Random selling: positions are sold at random.

• Psychological winner selling: positions with the largest unrealized gains relative to average purchase price are sold first.

• Psychological loser selling: positions with the largest unrealized losses relative to average purchase price are sold first.

When multiple positions are sold in the same year, the rules are applied in order. Under winner selling, the biggest winner is sold first, then the second biggest, and so on. Under loser selling, the biggest loser is sold first, then the second biggest, and so on.

The core intuition is behavioral rather than fundamental. The simulation is not trying to determine whether a sale was justified by valuation, business quality, or thesis deterioration. It is asking a narrower question: what happens when the decision process is systematically tilted toward selling the strongest winners, the weakest losers, or selling without bias?

Buy rules

Two replacement rules are used:

• Random replacement: replacement positions are chosen randomly from the eligible names not already held.

• Oracle replacement: replacement positions are chosen ex post from the same eligible universe based on their future terminal performance.

The oracle rule is not meant to be realistic. It is a stress test. It asks whether even the best possible replacement, with hindsight, can fully offset the cost created by the sale. In most cases, it cannot.

Benchmarks and definitions

The primary benchmark is buy-and-hold. For each simulated portfolio, the corresponding buy-and-hold benchmark is the portfolio that keeps the same initial positions over the same period, with no turnover. This makes the comparison internally coherent: same starting cohort, same names, same horizon, different decision process.

Opportunity cost is measured in two related ways.

First, at the portfolio level, it is the gap between the realized outcome of the active selling process and the outcome of the benchmark or comparison path.

Second, at the event level, it can be framed as the difference between what a sold position would have become if kept and what the replacement position actually became after transaction costs.

These are different views of the same mechanism: selling closes one path and forces capital onto another.

Why annual data

The simulation uses annual observations rather than daily or monthly data. This reduces noise, keeps the experiment interpretable, and focuses attention on the long-run compounding consequences of selling rather than on short-term fluctuations. That also means the analysis is about structural opportunity cost, not execution timing.

Main biases and limitations

This framework is intentionally narrow, and that creates several biases.

1. Fixed initial cohort bias.
The investable universe is frozen at the starting date. Real investors can discover new companies over time. This setup excludes that possibility. It therefore isolates the cost of abandoning existing winners, but it likely understates the value of skill in finding new names later.

2. Annual frequency bias.
All decisions happen once per year using year-end prices. Real selling decisions are continuous, not annual. This means the simulation captures broad directional effects, not the exact path that would occur under real trading behavior.

3. No thesis-level information.
The model does not know whether a company deteriorated fundamentally, became obviously overvalued, cut guidance, or faced permanent impairment. It only sees prices and rules. So the results should not be read as “never sell.” They should be read as evidence that selling is far more expensive than it appears by default.

4. No taxes, slippage, or market impact beyond simple trading costs.
Transaction costs are modeled mechanically, but taxes and execution frictions are not. In real life, those frictions usually make selling look even worse.

5. Equal-weight simplification.
All portfolios start equal-weighted. That makes cross-scenario comparisons cleaner, but it is not how all real portfolios are run. Capital allocation skill is not modeled here.

6. Survival and disappearance handling.
When a stock stops having prices in the dataset, its value is frozen rather than treated as a realized delisting return. That is a conservative modeling choice for consistency, but it is still a choice. Different assumptions would slightly change the tails.

7. Psychological winner/loser definitions are price-based, not fundamental.
A “winner” is defined as a position with an unrealized gain relative to average purchase price, and a “loser” as a position with an unrealized loss. The sell rules rank positions by that price-based measure, not by fundamentals or intrinsic value. A stock can be above cost and still cheap, or below cost and still bad.

8. Opportunity cost is partly path-dependent.
The exact magnitude of opportunity cost depends on which future extreme winners were owned, when they were sold, and what replaced them. That means the results should be interpreted statistically, not as deterministic laws for every individual case.

What this framework is good for

This simulation is useful for answering general questions about the consequences of selling, not for judging specific real-world decisions.

It is not meant to determine whether any single sale was justified. Its purpose is to show that, as a class of actions, selling is far more dangerous than most investors assume.

That is the main point.

Petabytes of data. Armies of elite analysts. Computing power that could rival an intelligence agency. And the result? Almost no real edge.

The explanation is simple: modern finance looks at the branches and misses the roots.

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Branches vs. Roots

That line gets to the heart of investing. So let’s do a little tree work.

Branches are the visible, legible stuff. The kind of information that drops neatly into a spreadsheet: KPIs, guidance, margins, polished narratives, and so on.

Branches are seductive because they’re:

• easy to understand,

• easy to communicate,

• and they feel objective.

Roots are the hidden upstream causes that make branches exist: management culture, customer obsession, employee quality, incentives, learning speed, etc.

And that’s the problem: roots don’t present themselves cleanly. They’re difficult to observe, …

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I hope your brain says “yes.” I’m sure your actions say “not really.”

Buffett, Munger, Lynch, etc. No one is immune.

The bias doesn’t disappear with experience. It just wears a different disguise.

A short walk is all it takes to see it.

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No Country for Old Men

You’re out for a quiet walk.

It’s summer. The hot wind stimulates your sudoriparous glands, when suddenly you spot a $100 bill on the ground.

Being naturally anxious, you hesitate. What if it belongs to the wrong person? A dealer. Or a psychopath. These days, who knows.

Decision made. You leave it right there. Either way, you didn’t lose anything and you didn’t gain anything. So everything’s fine.

Except it isn’t.

In reality, your anxiety just made you $100 poorer. An anchoring bias made you compare your new empirical wealth to your wealth from a now-dead past.

But the moment that $100 entered the equation, your baseline shifted. Finding it raised your potential wealth by $100. Walking away cost you that $100 of potential.

Anchoring, loss aversion, and regret aversion aside1:

• Not earning $1 = Being $1 poorer

• Not losing $1 = Being $1 richer

And that’s the point: you’re about to lose millions (maybe billions) of dollars you’ll never earn. The more you trade (buy/sell), the more you’ll lose.

For better and for worse.

I Love You… Me Neither

The moment you buy a stock, you’re buying a range of futures.

• Your potential wealth now includes whatever that stock can still become

• The moment you sell, you collapse that range into a single outcome.

That’s why your realized path will almost always lag behind your full set of potential paths, which brings us to this hard-to-swallow equation:

Empirical Wealth ≤ Theoretical Wealth.

To turn ≤ into =, you’d need to sell only when the stock’s remaining upside is worse than your best alternative, every time. Which is literally impossible, you’ll agree.

The whole investing game is making decisions that:

• maximize your potential wealth (your analysis skills),

• while minimizing the gap between theoretical and empirical wealth (your psychological skills).

But you’re playing the I Love You… Me Neither game against a serious opponent: the asymmetry of stock returns (max loss = -100%, while max gain → +infinity):

• I love you: own a multi-bagger that compounds for decades.

• Me neither: selling it too early for a lower-performing stock blows up your opportunity cost.

If you’ve been investing long enough, you probably have a few scars that never fully healed

Investing is Choosing Our Regrets

Peter Lynch has a perfect story for this.

This isn’t just Peter Lynch’s greatest mistake. It’s the biggest mistake of many of the greatest investors:

• Buffett bought Berkshire Hathaway out of ego, calling it his “dumbest stock,” and estimated the opportunity cost at $200B by his own math (see the interview).

• Peter Thiel invested very early in Facebook, taking a 10% stake for $100k. He cashed out at the IPO for $2B, which would be $100B today.

• SoftBank bought 5% of Nvidia in 2017, sold after a 20-30% drawdown in 2019 for $3B. Today, it would be $200B, more than SoftBank’s market cap.

Those mistakes cost them far more than their “empirical” losses. And it’s always the same culprit: the asymmetry of gains.

And for us too, mere mortals, it’s often the #1 source of value destruction.

So I decided to follow Sun Tzu’s advice: “If you know neither your enemy nor yourself, you will be defeated in every battle.”

And even if I don’t have Peter Lynch’s phrasing, I do have tools he didn’t have back then: a lot of data, and a lot of compute.

Perfect for getting to know a mathematical enemy.

Do the Maths

To really see opportunity cost in all its forms, I simulated hundreds of millions of portfolios to answer four questions:

• How does opportunity cost show up, and how does it grow?

• How does it change depending on the portfolio’s structure?

• How do buying and selling decisions impact it?

• What, concretely, reduces it?

These simulations gave me some very surprising results, and they’ll have a direct impact on my investment process, without question.

Here’s the full analysis.

Take care,

Flo

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You can find the first 5 here.

Let’s go.

Law: Stare Decisis Et Non Quieta Movere

The Big Idea

“Stand by the thing decided and do not disturb the calm.”

In plain English: past decisions become the default rule for similar cases, that’s how case law gets built.

More precisely:

• A court’s prior decision is a precedent.

• Stare decisis is the principle that courts should follow relevant precedents.

When a court rules on a novel case, it creates an anchor point that judges, lawyers, and citizens will align around.

Precedent is therefore a tool:

• a arbitrary tool for deciding when reality is new and uncertain,

• that creates predictability by imposing a default for future similar situations.

Arbitrary, yes, but effective for managing uncertainty at low cost.

The Mental Model

Once again, the trick here isn’t in generalizing, it’s in transposing.

Our first reaction to a new situation tends to become our “precedent”: the default response next time.

We can thank biology and psychology for that:

• Similar causes (context), similar effects (reactions).

• Our brains are wired to lock in a solution fast (anchoring, confirmation, availability).

So the right question, every time you face something for the first time, isn’t “what should I do now?” but: “Am I okay with this becoming my standard?”

If, on your first investment:

• You require yourself to read the latest annual report + transcripts before buying, you create a standard.

• You buy because your colleague won’t stop talking about it, you also create a standard, but a bad one.

Applying this mental model with zeal is an excellent way to deserve it until you get it. Especially the “until” part.

The 1-Line Rule

Choose your reaction to a new situation as if you’ll have that same reaction every time, because you probably will.

Biomimetics: Meta Mental Model

The Big Idea

Congratulations, it’s a meta mental model! → A mental model that lets you discover (or create, your choice) other mental models.

Based on its definition, biomimetics is a core discipline in this series:“Biomimetics is the emulation of the models, systems, and elements of nature for the purpose of solving complex human problems.”

The idea of “mental models” fits naturally inside biomimetics, with one difference: mental models (and therefore this series) aren’t limited to nature in the biological/ecological sense, but in the physical sense (our universe, and beyond).

If we stick to a biological definition, nature is (roughly) just the result of an initial event, environmental variation, and natural selection, that is:

• the selection of traits that appeared by chance through mutations and that maximize survival and reproduction, and

• the disappearance of the rest.

Natural selection is therefore a machine for creating (or selecting, your choice) increasingly optimized processes.

Put differently: among all the possibilities the universe offers, natural selection will select the most effective ones (for a given environment).

That makes it an excellent source of mental models to shamelessly clone.

The Mental Model

As a meta mental model, the process is only meant to discover other mental models (some people call that meta-wisdom):

• Study biological/ecological processes shaped by natural selection, and understand why they’re so effective;

• Describe and recognize the situations in which that process is effective;

• Apply the process in similar situations.

Jeff Bezos has admitted to “stealing” ideas from biology to build Amazon. His shareholder letters contain clear examples.

For a complete, step-by-step case study → Mental Model #6: Clonal Selection.

The 1-line Rule

Steal proven solutions from nature: identify the function, extract the principle, then port it to your problem.

Oceanography: Reservoir Thinking

The Big Idea

The ocean is best understood as a system of stocks and flows:

• a stock = a quantity contained in a compartment → CO₂ in the deep ocean, salt at the surface, etc.

• a flow = a transfer between compartments → CO₂ from the deep ocean to the atmosphere.

The key feature here is that, in oceanography, we often deal with gigantic stocks relative to the flows that change them.

The direct consequence is inertia: even if flows change today, the stock moves slowly.

Very slowly. For example:

• A hot summer can raise the temperature of the top 50 meters in a few days/weeks.

• But then heat takes years to penetrate below the surface (thermocline), and decades, or even centuries, to reach (and meaningfully alter) the deep ocean.

That response time becomes the oceanographer’s nightmare: it drastically complicates the analysis of causes and their consequences.

The Mental Model

The goal is to look for similar structures, estimate their response time, and adapt our strategy to the system’s timeframe.

1. Identify the Stock: what variables “carry” the system? (cash, backlog, trust, love, etc.).

2. Identify the Flows: what flows change the stocks?

3. Estimate the Response Time: a workable approximation is response time ≈ stock / net flow (more often a mental estimate than a real calculation).

4. Don’t misread noise: if response time is long, short-term variations are mostly noise.

WARNING: a flow is bidirectional along the same axis, and its speed can differ wildly in each direction. Think reputation: it can take decades to (re)build (high stock & low flow), but get destroyed in seconds (high stock & very high flow).

The 1-Line Rule

Higher Stocks + Lower Flows = Higher Response Time → Higher Relevant Timeframe

Cybersecurity: The Best Defense Is Offense

The Big Idea

Cybersecurity is war. And like any war, it’s won through paths.

A system doesn’t fall “because it’s imperfect.” It falls because there exists a path with a positive attack ROI:

• an entry (e.g., reused password),

• followed by a viable path to the target (a chain of access all the way to the keys to the kingdom),

• an impact (money, data, reputation, etc.).

Cybersecurity is the art of finding and blocking those paths, and of limiting the blast radius when it still gets through.

That’s why engineers practice pentesting (penetration testing) with zeal: simulating an attack yourself to find those paths and block them.

As often with systems (yes, them again), the practice generalizes extremely well (a country, a portfolio, an economy, an industrial process, etc.).

The Mental Model

Pentesting happens in 5 phases:

1. Reconnaissance → Gather all available information.
   Fundamentals, drivers, correlations, liquidity, dependencies, history, maturities, etc.

2. Scanning → Map the attack surface and identify breaking points.
   Concentration (sector, geography, currencies, etc.), implicit leverage, counterparties, correlation spikes, etc.

3. Exploitation → Test scenarios step by step until they cause real damage.
   Historical FX moves (-20% on EURUSD) / needing day-to-day liquidity + deep drawdowns, etc.

4. Post-Exploitation → Assess potential damage and its probabilities.
   The € has already dropped 15% per year versus the $ for multiple years in a row. As a European investor invested only in USD-denominated assets, my annual performance can be wiped out by FX.

5. Reporting & Remediation → Turn discoveries into path-blockers.
   I diversify my currency exposure / I keep 6 months of expenses + taxes in cash / I stagger my options maturities by at least 6 months, etc.

The 1-Line Rule

Without an adversary model, you build a random defense that leaves the cheapest entry point wide open.

Political Science: State Capacity

Power is useless if you don’t have the capacity to wield it.

That capacity is called state capacity.

More formally, it’s: the ability of governments to effectively implement their policies and achieve their goals.

For a government, that capacity comes from the capacity of its organizations (police, tax administration, teachers, etc.) and its infrastructure (police stations, online tax portals, schools, etc.).

But you can generalize this principle to any structure made of living beings with power asymmetries: a family, a classroom, a city, etc.

The Mental Model

The “state capacity” reflex is to explicitly separate the power to decide from the capacity to execute, to enforce, and to prevent.

When a new leader arrives (CEO, head of state, president of a regulatory body, etc.), the question isn’t “what does he want?” but:

• is the system he runs capable of executing what they want, and

• where is the potential bottleneck?

When Gary Gensler, former “Blockchain & Money” instructor at MIT, took over the SEC in 2021, the crypto community welcomed him like a near messiah.

But what followed illustrated the mental model perfectly: the SEC became crypto’s worst enemy during the Biden administration, and Gary Gensler was shaped by the SEC system more than he shaped it.

The appointment of Kevin Warsh as the next Fed Chair could potentially be a concrete case study for applying this mental model.

The 1-Line Rule

In every system, the real ruler isn’t the top, it’s the bottleneck. Weak capacity yields promises, strong capacity yields consequences.

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Only 35 more to go. The pace is very intense, but this series is transformative.

Every week I feel a massive step-change in progress. No doubt I’ll be far better equipped at the “end” of this series.

I hope it’s the same for some of you. Either way, I’m trying.

Take care,

Flo

Scheduling Update:

I’m changing the publishing schedule for my series, 50 Mental Models to Think Like a High-Level Generalist.

The original plan was one post per week for ten weeks. In practice, that pace is too constraining to maintain the level of quality I’m aiming for.

So I’m giving myself full flexibility on timing. I’ll publish the series either as one complete post or split into two posts, released as soon as they’re ready. I won’t give a precise date, but it won’t be finished for at least a few months.

To be clear: this isn’t a stop. I’m working on it continuously and will keep doing so. I just enjoy writing this series too much to ruin it with arbitrary deadlines that hurt the quality.

Thanks for your understanding.

Source

Law: Stare Decisis Et Non Quieta Movere

• I have no doubt a legal specialist might be slightly offended by how much I simplified stare decisis and precedent. But it was a necessary tradeoff for readability. For a more complete and rigorous definition:

  • Cornell Law School (LII, Wex) — “Stare decisis”.

  • Cornell Law School (LII, Wex) — “Precedent”.

• To go deeper on the behavioral side of “precedent”:

  • Tversky & Kahneman — “Availability: A Heuristic for Judging Frequency and Probability” (Cognitive Psychology, 1973).

  • Tversky & Kahneman — “Judgment under Uncertainty: Heuristics and Biases” (Science, 1974).

Biomimetics: Meta Mental Model

• On Bezos, biology, and business: Jeff Bezos (Amazon), 2006, 2016, and 2020 Letter to Shareholders.

• For a concrete biomimetics case study: Julian F. V. Vincent et al., “Biomimetics: its practice and theory,” Journal of the Royal Society Interface (2006).

Oceanography: Reservoir Thinking

• A relatively gentle introduction: NOAA Climate.gov, Climate Change: Ocean Heat Content.

• A more complex and more specific approach (and nothing beats a concrete case to highlight real-world complexity): Messias et al., 2022, The redistribution of anthropogenic excess heat is a key driver of warming patterns in the North Atlantic.

Cybersecurity: The Best Defense Is Offense

• My source for the pentest methodology. Note: I merged/removed some steps to make the framework generalizable: PTES, The Penetration Testing Execution Standard.

• For those interested in cybersecurity but not experts (like me): an excellent guide that goes deep while staying approachable. It felt like reading a modern-day Art of War: NIST, SP 800-115: Technical Guide to Information Security Testing and Assessment (2008).

Political Science: State Capacity

• For this mental model, a single (excellent) source was enough. It breaks down state capacity from every angle: Cingolani (2013), “The State of State Capacity: a review of concepts, evidence and measures.”

Pick anyone you want for an arm-wrestling match.

• +$10,000 if you win.

• –$10,000 if you lose.

Of course, you wouldn’t pick Dwayne Johnson.

You’d look for the smallest, frailest opponent you could find, win quickly, take the $10,000, and compensate them for their time.

But you wouldn’t pick Dwayne Johnson.

Even if the word “arm-wrestling” made you think of him first.
Even if everyone else picked him.
You’d pick the opponent that makes winning easiest.

Agreed? Great.
Now let’s change the game.

Imagine an active investor managing 8 figures or less.

You’d expect him to do the same: pick the arena where winning1 is “easiest”, not where the strongest players in the world are already fighting with better tools.

So he wouldn’t:

• focus on the part of the market where prices are less inefficient,

• compete directly against the biggest, smartest players,

• in the most crowded names.

He’d go where:

• there are fewer competitors,

• his edge actually matters,

• and inefficiencies are still meaningful.

Even if everyone is talking about the big names.
Even if the first tickers that come to mind are mega caps.
Even if the crowd keeps piling into the same companies.

Yet most investors go straight for Dwayne Johnson. Here’s why.

Read This Before You Do Something You Could Regret

To avoid talking past each other and/or getting into heated debates, here’s exactly what I mean in this post:

• “Investor” = an active investor managing < $50M

• “Active” = active on two dimensions:

  • stock selection

  • time horizon (from a few months to a few decades)

• “Small caps” = market cap < $1B, with sufficient liquidity

• Competence assumption: if an investor can do stock picking in large caps, they can do it in small caps too.2

Let’s begin.

Good Answers, to the Wrong Question

I’ve had countless conversations with active investors who are anti–small caps.

When I ask, “Why don’t you focus on small caps?”, I always get the same sempiternal three arguments:

1. Large caps are much less risky (fraud/bankruptcy) and less volatile.

2. There are far more bad companies in small(er) caps.

3. Information on large caps is higher quality and more transparent.

All of that is true. And that’s exactly why an active investor should generally avoid large caps.

When the goal is to generate alpha3, there’s only one question to ask:

“Where do my efforts have the best chance of paying off, given the risks I take and the time I spend?”

The answers are simple:

1. Where other investors don’t like to go, because they fear perceived risk and volatility.

2. Where there are plenty of bad businesses, and where stock-picking skill is more likely to create an edge.

3. Where information is harder to find, and where individual research is more likely to create an edge.

4. Where you compete against fewer people who are smarter than you and better resourced than you.

In other words: smaller caps.

Their answers were good, but they answered the wrong question. In fact, they were the right answers to the inverse question.

That’s the theory. It still doesn’t explain why so many active investors end up focusing on large caps in practice.

Let’s talk about junk, availability, and blindness.

Size Matters, If You Control Your Junk

It’s possible to get rich by controlling your junk. Let me explain.

The “size premium” (the long-run outperformance of smaller companies) has sparked endless debate over the past 50 years.

But most of that debate rests on an assumption that, for the purpose of this post, is a mistake: it treats small caps as one homogeneous bucket.

In reality, small caps contain more “junk” on average and a much wider dispersion of quality. Treating them as a single bloc means refusing a very real selection opportunity, which, for an active investor, is pure alpha destruction.

Fortunately, researchers re-examined the size premium by applying a simple quality filter to small caps; they call this “control your junk.”4

With these simple filters, the size premium not only becomes meaningfully larger, but the effect also shows up across:

• virtually all countries,

• virtually all industries,

• in a way that’s robust and stable over time.

Better yet, it’s not one filter, it’s multiple filters.

There are five, and all of them improve performance. Here they are5:

• Profitability (+5.16%/year) → higher margins, strong cash flows, and cash earnings that match accounting profits

• Safety (+4.28%/year) → low leverage, stable profits, low distress risk

• Payout (+5.28%/year) → limited dilution and meaningful cash returned to shareholders

• Growth (+2.43%/year) → multi-year improvement in profitability (ROE/ROA/margins/cash flows)

• All four combined (+6.04%/year)

If several different definitions of “quality” all point the same way, it says something fundamental: in small caps, filtering is the condition that makes the universe investable.

So what: does the lack of interest in small caps simply come from investors not realizing how heterogeneous they are, and how much filtering matters, therefore leaving all these opportunities on the table? Is that really the root cause?

Of course not.

This is one of the most competitive games on the planet (maybe the most). A simple lack of easily available information can’t be the explanation for that much apparent irrationality.

In situations like this, the thick description mental model is useful: look for the invisible constraints that explain the behavior, rather than defaulting to ‘irrationality.’

Since Kahneman and Tversky, and the death of homo economicus, the prime suspect is almost always the same: investor psychology.

The Pernicious Inheritance

Most investors don’t really choose their investing universe, they inherit it.

They show up with the same 30 names already printed in their heads:

• the ones they hear everywhere before they’ve even opened an annual report,

• the logos and jingles they’ve seen since childhood (e.g., home bias),

• the stocks the “knowledgeable” coworker keeps repeating (often the one who got them into it in the first place),

• add a pinch of social-media echo chambers (two “must-listen” podcasts, three viral threads…),

and voilà: a perfectly functional availability bias.

Availability bias is the tendency to make decisions based on the information that requires the least effort to access.

Where do most people go for finance information? Mainstream financial media: social platforms, TV, YouTube, and the rest.

And how do mainstream finance media become (and stay) mainstream? By talking about the mainstream companies that are most likely to interest the largest audience: large caps.

The snake is really eating its own tail. But we can go further.

Once you add the impact of other powerful biases, like:

• confirmation bias (e.g., the 4th bullish thesis on a company mostly just reinforces what you absorbed from the first three),

• anchoring (your baseline for what a “good” business looks like, what kind of volatility is “normal,” and so on),

you get a classic Lollapalooza effect: investors are almost inevitably pulled toward the same large caps, as if by gravity.

But that’s only the perception side of the story. If the problem stopped there, small-cap avoidance among small active investors wouldn’t be so persistent.

To go further, we need to look at how people react to these perceptions.

I Perceive, Therefore I Become

Let me borrow a concept from social psychology and tailor it to investing: cultural blindness.

If availability bias is about the first environment you’re exposed to, cultural blindness is what you do afterward, when you more or less willingly lock yourself into that environment and become blind (or impermeable) to everything else.

In investing, it’s something we all do:

• when we subscribe to this a newsletter, a newspaper, a YouTube channel, etc.

• when we repeat a takeaway about a company that we first picked up through availability bias

• and more subtly, when an algorithm “refines” what it shows us based on our clicks, or even the extra second we spend staring at a thumbnail

And those are just our internal incentives to build an environment that feels comfortable.

But our environment can be persuasive too:

• Attention maximization: you talk about what everyone talks about (otherwise you’re talking to yourself.)

• Social defensibility: picking ideas you can defend with standard references so it sounds “reasonable” before the results show up.

• Shame asymmetry: a “mainstream” mistake gets diluted whereas an “obscure” mistake sticks.

• And so on.

Add thousands of other small, subtle, mostly unconscious forces, and the combined pull becomes almost inexorable.6

So inexorable that it ends up shaping our “preferences” everywhere (music, sports, political views, etc.), to the point where we often confuse repeated exposure with genuine taste. Or maybe genuine taste is just repeated exposure.

Either way, a pattern this recurring probably deserves a few minutes of thought.

Just to be clear: my goal isn’t to convince you to invest actively in small caps.

Everyone chooses their game, and that’s perfectly fine.

Think of this post as a message in a bottle: one more perspective, take it or leave it.

Before I cork it and toss it back into the ocean, let me slip one last note inside:

If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling.
The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then.
It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.
Warren Buffett

Take care,

Flo

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“I’m a big fan of knowing the big ideas in pretty much all the disciplines … and then using those routinely in your judgments. That’s just my system.”

I’ve extracted 50 “big ideas” from 50 disciplines.

5 new ones every week.
You can find the first 5 here.
This week: #6 through #10.

Immunology: Clonal Selection

The Big Idea

Imagine we receive a radio message from an extraterrestrial species: “We’re declaring war. We’re going to wipe your planet out.” How do you prepare?

You don’t know the enemy, their weapons, or their strategy. You’re facing an “infinite” adversary in the sense that the space of possibilities exceeds what you can even imagine.

That’s exactly what your immune system has to do, constantly.

To do that, it pre-positions as much diversity as possible and lets reality do the selecting. This process is called clonal selection:

• The immune system maintains a gigantic library of immune cells (especially B cells and T cells), each carrying slightly different receptors.

• When a pathogen X shows up, most cells won’t detect it, but a few will partially match it.

• That partial match triggers a cascade that makes those cells proliferate and specialize.

• Some of the newly produced cells are kept and strengthen immune memory.

• Next time a similar pathogen appears, the response is faster and stronger.

In one line: clonal selection = variation → selection → amplification.

Here’s an excellent visual representation of the process:

Ontologically, it’s simply an immune learning process: the immune system learns how to defend itself against a new, unknown “enemy,” and stores what worked.

Interestingly, different types of learning tend to share the same shape, whether it’s human, immune, or machine learning.

The Mental Model

The process is so effective that it almost begs to be translated.

When you’re facing a problem that’s complex, uncertain, or evolving:

1. Generate variety: produce multiple candidates (hypotheses, options, prototypes, routines, etc.) with low unit cost and fast feedback.

2. Define a selection criterion: a metric that tells you a solution works “well enough.”

3. Let reality select: deploy candidates and observe which ones survive by the criterion.

4. Amplify: double down on what works, while reintroducing a bit of variety.

5. Store it: treat it as learning, and optimize the learning process itself (immune memory).

6. Repeat until the solution is good enough, or stop if the cost (time, attention, money) becomes too high.

Simple, but brutally effective.

I joined social media three months ago and knew absolutely nothing about it. Faced with that complexity, I applied exactly the method above:

• I opened accounts on a bunch of platforms.

• I tried many things in parallel (and still am), then focused on what worked best.

• This series is one way for me to inject variability during the amplification phase.

That said, don’t judge the method by my “performance.” Most problems come from the strategist more than the strategy.1

This isn’t gratuitous self-bashing, but if nature selected this learning process for the immune system over millions of years, it’s probably because it’s fundamentally extremely effective.

Machine Learning: Overfitting

The Big Idea

No wise teacher would use the exact test questions as training exercises. Students would have massive incentives to memorize the answers, and the teacher’s hard work would be wasted.

So teachers vary practice problems and test problems. Surprisingly (or not), that’s also what we do in machine learning.

What we really want from a neural network is discriminative power across the widest possible range of cases.

In general, when you train a neural network, you split the data into three sets:

• a training set,

• a validation set (used during training to tune and decide when to stop, but not essential for our purpose here),

• and a test set.

The goal is to prevent the network from becoming “too perfect” on the training set, and then failing on slightly different data (the test set), which would make it useless. That failure mode is overfitting.

There are many ways to reduce overfitting (e.g., dropout, deliberately forcing “forgetting”), but the most fundamental lever is simple: the quality, diversity, and representativeness of your data.

The closer your sample gets to the true population of situations the model will face as input, the less overfitting you should expect (all else equal).

But in machine learning, the overall process is relatively standardized, which makes optimization much easier than in biological learning.

In biological learning:

• We don’t have a clean, reliable “test set” metric the way we do in machine learning.

• Data arrives discontinuously and in a non-standardized way.

• Training is often discontinuous (e.g., learning how to react appropriately when someone wishes you happy birthday: one “training session” per year).

So the consequences of overfitting are more subtle and more pervasive, but we can still borrow a lot from machine learning to reduce its impact.

The Mental Model

Overfitting is a cognitive bias. And like most cognitive biases, its impact tends to shrink simply by becoming aware of it.

Overfitting’s best friend is precision. Your detector should go on high alert whenever something feels too clean, too specific, too perfectly fitted.

A classic example in finance: indicators or models that “predicted” the last 10 bear markets or recessions. They’re almost always built after the fact and tuned to the past, impressive in hindsight, fragile in the future.

Statistically, there’s an infinite supply of indicators. So you can always find some that fit the historical record perfectly. But statistically, (almost) all of those indicators won’t predict the future.

There’s no absolute rule, but these heuristics make the mental model usable in practice:

• Precision → Alert. The more precise a claim/model/theory is, the more suspicious you should become.

• Stress-test robustness. Automatically ask: does this survive changes in conditions? The more precise it is, the more it must.

• Separate discovery from proof. What helped you find the idea should not be what you use to “validate” it (keep training set and test set separate). If you’re using the same data for both, the odds of overfitting jump.

• Sometimes: don’t learn. Human unlearning is expensive. When the downside of internalizing a bad model is high, caution can beat cleverness: better to skip learning than to overfit and then pay the price to unlearn.

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Anthropology: Thick Description

“There is no reason to believe that beasts have thought… and that it is more probable that they are devoid of it.”

Anyone who has a pet would call the person who said that cold, detached, and irrational.

But your certainty probably wobbles if I tell you that this very same person also pioneered analytic geometry, while being one of the most famous philosophers of all time: René Descartes.

So how can a mind that is clearly brilliant say something that looks this absurd?

As usual, you have to zoom out: think in fields, not points.

The trap is judging an idea (or a behavior) outside its context. In anthropology, we often contrast two levels:

• Thin description: you describe the act “as-is,” isolated, stripped of its environment.

• Thick description: you describe the act together with the system that gives it meaning (norms, beliefs, tools, era, constraints…).

If you ignore the environment and focus only on the act itself, “irrationality” is often the only conclusion our personal lenses can offer.2

But once you integrate the constraints shaping that environment (knowledge constraints, tools, time, culture, incentives, etc.), many behaviors that looked irrational start to make sense.

Even though the concept comes from intercultural analysis, it applies extremely well to “everyday life”:

• Why did this person commit such an obvious fraud?

• Why buy this stock?

• Why sign this treaty?

If you stop explaining the world with “irrationality,” and instead look for the context and constraints that structured the decision, you very often get closer to the truth.

The Mental Model

Whenever a behavior (decision, statement, action, etc.) feels irrational, pause judgment long enough to answer six questions:

1. What is the real goal of this behavior?

2. Are there credible alternatives to reach that goal?

3. If yes, which ones, and what do they cost?

4. What does the actor risk (reputation, sanction, loss of face, etc.)?

5. What does the actor actually know, and what might they not know?

6. Am I sure I know all the important constraints that could be shaping this behavior?

Applied to the biggest financial crises in history, constraints usually explain far more than “pure irrationality”: liquidity constraints, leverage constraints, balance-sheet constraints, and so on.

And the biggest bull runs are often tied to the gradual, continuous relaxation of those constraints. Irrationality tends to matter most in the final act.

Information Theory I: Overconsumption of Complexity

The Big Idea

Promise made, promise kept.

Nothing is more fundamental than information. In some sense, any phenomenon can be modeled as a flow of bits:

• the erosion of your neighbor’s home’s walls,

• your neighbor’s cells in the middle of mitosis,

• the evaporation of the black hole at the center of our neighboring Andromeda galaxy.3

Nothing escapes that lens (yes, even the neighbors).

This is perfect, because the whole point of this series is to extract important ideas and generalize them to maximize their usefulness (and that’s why at least one more information-theory concept will show up later in the series).

But not all information is created equal.

In information theory, information is tightly linked to uncertainty: the core quantity (entropy) measures uncertainty, and “information gained” can be seen as uncertainty reduced.

If it doesn’t reduce the relevant uncertainty, whether it’s true, rare, or interesting is trivial.

So in practice, a piece of information has value only if it reduces the uncertainty that actually matters (i.e., the uncertainty that blocks a decision).

Ignoring this leads to the error of overconsuming complexity: hoarding non-decisive information while feeling like you’re doing rigorous work.

The fix is to focus on the marginal value of new information.

The Mental Model

We’re almost constantly foraging for information (visual, auditory, procedural, etc.).

So the process needs to be fast, cheap, discriminating, and repeatable:

1. Decision variable: State the decision type (act, wait, choose, quit, etc.).

2. Switching information: What single piece of info could drastically flip my decision?
   (e.g., “I turn down this job offer if I find a negative, non-anonymous review from a former employee.”)

3. Compression: If no decisive info comes to mind quickly, compress the problem into 2-3 variables.

4. Stopping rule: Set an exit rule in advance (e.g., “I stop after 30 minutes, no matter what”).

5. Marginal value test: For each new piece of info: does it reduce uncertainty on those variables enough to change the decision?

6. Exit: Stop when either:

   1. a decision is made + you can name the information that changed your mind, or

   2. your stopping rule triggers.

Across a lifetime, the marginal value of this reflex is enormous. It even makes you wonder why information theory isn’t taught in school in a practical (math-free way), through heuristics like these.

Motivation Psychology: The Expectancy-Value Trick

The Big Idea

Motivation psychology is a deep well of knowledge you can apply to everyday life.

I could have talked about feedback types and what they’re good for, about juggling extrinsic vs. intrinsic motivation, about emotion as a signal of motivation rather than the enemy, etc. But I chose a “simple equation” of motivation:

Motivation ≈ Goal value × Perceived probability of success4

Be kind to motivation psychologists. The field has roots in 19th-century physiology, where there was a strong urge to describe human body with equations, and that habit stuck around well into the 20th century.

Even if this equation doesn’t make mathematical sense, what matters are the concepts and the relationship between them:

• Your motivation for a task depends on the value of the goal and your perceived odds of succeeding.

• These are tendencies, not absolute rules. But often very pronounced:

  • High value + low probability → anxiety + avoidance

  • High value + high probability → motivated

  • Low value + high probability → apathy, procrastination, etc.

  • Low value + low probability → indifference

But that’s not all. There’s a crucial nuance that turns this into something actionable.

The Mental Model

I said value and perceived probability. So we’re talking about perception (as always, with living things).

The upside is that we can influence our perceptions.

Concretely, if you want to keep motivation high for longer, you have two levers (the examples may sound caricatured, but this is about perception; use whatever fits you best):

1. Increase perceived value

   1. Add meaning to the task → “My kids’ air quality will be better if I sort my waste properly.”

   2. Tie it to identity5 → “I’m someone who takes care of myself, so I’m doing this workout.”

   3. Strategic rewards/punishments → “I won’t look like someone who breaks their word if I finish this post by Sunday.” (Notice: it’s a negative reward, I’m avoiding a punishment.)

• Increase perceived probability of success:

  • Reduce task difficulty → go from a 1-hour run to 45 minutes

  • Reduce perceived difficulty by clarifying the next step → “analyze management’s track record” rather than “do my research”

  • Design the task to provide fast evidence of progress → break a complex task into a sequence of simpler sub-tasks with feedback.

Actively managing, and even “editing”, our perceptions is (probably) the biggest cheat codes in psychology.

This mental model is just one example among many.

10/50. 40 to go. I’m almost starting to feel nostalgic.

As much as I genuinely enjoy working on this project, the main goal is still for these tools to reach as many people as they can actually help.

So if you think this post could be useful to someone else, share it.

This project is 100% free, and it will stay that way.

Take care,

Masters of Compounding

PART 3 is already out:

• Stare Decisis

• Meta Mental Model

• Reservoir Thinking

• Pentesting

• State Capacity

I did my best to make it as valuable for you to read as it was for me to write.

Sources

1. Immunology: Clonal Selection

• As is often the case, it’s hard to point to a single truly “foundational” study behind a theory. More often, knowledge accumulates until a few people (or sometimes a single person) come along and formalize it into a coherent whole. That’s exactly what this book does. Maybe it’s because the field was much less developed at the time, but the book is very readable if you still have a solid memory of your biology classes: Frank Macfarlane Burnet (1959). The Clonal Selection Theory of Acquired Immunity. Vanderbilt University Press.

• For a more recent (and more comprehensive) approach to the topic: Hodgkin, P. D. (2008). “The golden anniversary of Burnet’s clonal selection theory.” Immunology and Cell Biology, 86(1), 15.

2. Machine Learning: Overfitting

• For a simple introduction to overfitting vs. underfitting and the evergreen bias–variance tradeoff: Google. Machine Learning Crash Course — “Datasets, Generalization, and Overfitting” (Overfitting / Generalization module). Google for Developers, last updated December 3, 2025.

• This paper is “old” by machine-learning standards, but it nails the core point: generalization is the real problem. And it’s exactly this kind of (sometimes uncomfortable) thinking that, in my view, enabled the field’s major breakthroughs, up to modern architectures like transformers: Zhang, C., Bengio, S., Hardt, M., Recht, B., & Vinyals, O. (2016). Understanding deep learning requires rethinking generalization.

3. Anthropology: The Thick Description

• The foundational text for the concept. The book is fairly old and you can feel it at times, but it’s still a worthwhile read: Clifford Geertz (1973). “Thick Description: Toward an Interpretive Theory of Culture”, in The Interpretation of Cultures.

• For a more recent critique of the concept and its limits: Susen, S. (2024). The Interpretation of Cultures: Geertz Is Still in Town. Sociologica.

4. Information Theory I: Overconsumption of Complexity

• The foundational text of information theory, and one of the greatest papers of all time. It’s fairly hard to read without math skills (even if it’s not very demanding), but the first 10 pages are really worth it, IMO. Claude Shannon (1948). A Mathematical Theory of Communication.

• For a detailed framework explaining why humans tend to over-consume information (and how they implicitly trade off value vs. cost when searching, reading, and “digging”): Peter Pirolli & Stuart Card (1999). Information Foraging. Psychological Review.

5. Motivation Psychology: The Expectancy-Value Trick

• The model described in this post is Expectancy-Value Theory. It’s neither the most comprehensive nor the dominant model today. But most modern frameworks can be seen as more developed versions of this core idea. For a deep dive into the foundations: Wigfield, A., & Eccles, J. S. (2000). Expectancy–Value Theory of Achievement Motivation. Contemporary Educational Psychology, 25(1), 68–81.

• For a broader view of the current state of motivation psychology: Urhahne, D., & Wijnia, L. (2023). Theories of Motivation in Education: an Integrative Framework. Educational Psychology Review, 35, Article 45.