i have a good feel about psh, page-8

I had a debate with Bacci some time back.

Unfortunately I have found out a few things:

1. The residents near to the mine are not happy with PSH as in the process of expanding the mine access they have built up huge stocks of overburden they now sell as landfill. They have spent a lot of money to try to mitigate its impact on nearby residents. They may not kill birds buts humans are not particularly happy. Humans have voices so PSH spent the money trying to resolve the dust. The best method to resolve the problem is to sell the overburden stock. The stock has in fact increased in each of the past 3 years.

2. The plant maintenance was not up to scratch when the private equity firm had it but according to various comments that has been put to rights now.

3. The plant is fully optimised and in fact without the Bicarb plant it would be making large losses as it cannot compete with the Trona based natural product. By the way there are a few articles suggesting that the Solvay plants are not being built because there has been enough Trona supply to make it unnecessary to build more. The view is that the Solvay plants are only there because they cost so much to build and are now fully depreciated and as such they keep running and selling into the market as price takers despite the market share they hold.

4. This business is not suffering as a result of the GFC - IMO the market for its product has been fairly stable. The real problem arose when they had to get efficiencies and in order to do that they needed to embark on a renewal program called - Way forward plan. By it very name you can see that it was born out of a need to change. - You have to ask yourself - why would a well run business in a dominant local market position have to have such a plan. Easily because IMO labour is expensive in Australia compared with many other locations and the plant is old so it needs more labour. Essentially Its the labour cost that pushes the business lower and lower as it is a price taker. The high Aussie $ impacts its earnings as the Soda ash base pricing is in US$. You have to take a view that suggests that the A$ will return to closer to its long term average. thats a currency trading process and a risk I am not sure I want to invest in. I could just as easily invest in the forex than.

5. The perfect storm for this business was getting the way forward plan together and relying on gearing to get it over the line. The GFC occurs - Its absorbing cash when others are deleveraging and to top it off they take on board a cornerstone investor who becomes problematical. The board room becomes a lot more intense and the rest is history.

6. The bi carb plant is great and a good earner - well done but the Soda ash plant has to run in order for it to run. So if the world market price is low you are locked into your optimum production no matter what. The profits of the Bi carb being absorbed into the soda ash plant.

7. Hygiene factors: The rail line is in need of repair. The water issues have been resolved. The Private equity company stupidly IMO sold the salt works so now you have to purchase in. It consumes energy when the world wants to up the cost of energy. The Trona suppliers will lift up the price but only to the extent that they can sell what they need. the Solvay processing plants have to run near optimum. Its a business that constantly gets noise as no-one likes it but it provides jobs. Only when the jobs are at risk is the community united.

8. Dont look at accounting profit look at the cash flows. Bad cash flows for some time.

9. Cheap for what you get but what you get - can it make money and the labour is not going to get any cheaper with environmentalists keep pointing the big finger at an industry that is consider old world.

After having taken Bacci's advice I did more research and thanked my lucky stars for having made money on this one. I have decided to stay out and not re-invest. A very well run business but too many risk factors and most way outside of managements control. No way can a new plant be justified and considering that the barrier to entry is transport costs not sufficient to sustain it long term IMO.

I only hold a few to stay on the register which is now not economical to sell.