Rail Link to Northern California Aggregate Quarry
At yesterday’s Longbow Research Conference, Steve Rowley gave an update on the rail link to the Northern California aggregate quarry. In particular, he stated that the real estate needed to link the rail to the deposit has been obtained and that he thinks that 2-3 years is a reasonable time frame to get all of the entitlements in place.
As Background,
The northern California aggregates deposit, located in the Yuba Goldfields, is one of the largest aggregates deposits in the state of California. The deposit is situated approximately 40 miles north of Sacramento and currently services its local market by truck. Once the deposit has been connected by rail, the production should increase form the current 3.0 - 3.5M tons/yr to about 10M tons/yr. The rail linkage will substantially reduce transportation costs. For example, Martin Marietta claimed in another presentation at yesterday’s Longbow Conference that trucking of aggregates cost $0.15-0.30/ton-mile, whereas rail cost $0.06-0.11/ton-mile. In answering a question by David Sacks (Hawkeye Capital) in the July 31, 2007 EXP earnings call, Steve Rowley said that he thought the rail project would probably cost $75-100 million by the time everything is done.
I think that it will take about 10 years of rail operation to return the $75-100M investment. This is based upon my estimate that the rail link will increase revenue from the California quarry from about $20M/yr to $60M/yr and operating earnings from about $4M to $12M/yr. This estimate is based upon 2005-2007 numbers wherein aggregates accounted for about 4% of total net revenues (which were $600M-900M/yr). Operating earnings for Concrete and Aggregates was about $8-16M/yr where aggregates accounted for a little more than half of the total (I’m estimating $6M/yr for aggregates). Sand and gravel from the California quarry represented about 3/4ths of the total aggregate production (the remainder was limestone from the Austin TX quarry). Hence, my estimate of about $4M/yr current operating earnings from the California quarry. I often make mistakes in this type of calculation, so one would be advised to check the math. However, the numbers make sense when compared to a calculation based upon the $6.88 net sales price and %5.56 unit cost for aggregates reported in the 2007 10-K (filed 5/29/07) resulting in a $1.32 margin multiplied by 3M tons of production at the California quarry.
EXP has been working towards establishing this rail link for a long time. The first public mention of this intention that I know of is in the 2005 Annual Report. Albeit, there was reference to the effort in an answer to a question by John Lynch (Lynch Research) in the April 28 2004 Earnings Call. John had asked about the relationship of an Air Force base to the quarry operation.
AI
