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Morningstar | Compass Minerals Poised for Profit Recovery as the Company Restores Low-Cost Salt Production

Compass Minerals holds an enviable portfolio of cost-advantaged assets. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces sulfate of potash, or SOP, a specialty fertilizer priced at a premium to standard potash. These operations at the Great Salt Lake in Utah can produce SOP at a significantly lower cost than producers that use a chemical process.About 60% of Compass' salt sales are to highway deicing customers. Sales volume is determined during the winter months and is strongly linked to the number of snow days per season. As such, weather has a big impact on Compass' year-to-year results. The deicing salt business also exposes Compass to climate change risk. One effect of climate change is for climates to shift north, which brings warmer weather and fewer snow days to northern climates. As a result, we expect a small decline in normal deicing salt demand over time and limited prospects for sustained price increases. Pricing for deicing salt has historically been stable, especially compared with prices for other commodities. Deicing salt has a low value/weight ratio, and transportation costs make up a significant portion of total delivered costs to the customer. With mines close to waterways like the Great Lakes and the Mississippi River, Compass can typically deliver deicing salt at a lower cost than competitors.Compass is also a cost-advantaged producer of sulfate of potash, a specialty fertilizer used for high-value crops that are sensitive to the chloride in standard potash (muriate of potash, or MOP). While marginal producers of SOP use MOP and sulfuric acid to produce SOP, Compass makes SOP directly from salt brines at a considerably lower cost. SOP prices generally track MOP prices, but a wider-than-normal gap has opened up between the two more recently, with SOP prices remaining elevated despite a drop in MOP prices. We think this spread will tighten, leading to slimmer per-ton profits for the company's fertilizer business.