For many CEOs, a jump in share price of more than 140% in a year would be cause to celebrate.
But for Herb Wilson, president and chief executive officer of construction aggregate company Polaris Minerals Corp. (TSX:PLS), that spike in value isn't a sign his company is riding a celebratory wave of rapid growth – it means Polaris is finally recovering from a difficult four years.
Polaris, established in 2006, supplies sand and gravel to developers of highways, bridges and other major infrastructure projects, primarily in the San Francisco Bay area.
Sand and gravel are the primary ingredients in concrete and asphalt.
The company's first year was successful, but what Wilson said was a 50% drop in the U.S. construction market in 2007 hit the company hard.
The depressed market forced Polaris to ship less than 25% of the sand and gravel it had anticipated shipping – about one million tonnes per year from its capacity of six million.
"It put us under tremendous strain; it's been very tough," said Wilson.
"At Christmas time last year, we didn't know if we could continue."
Beginning in 2011, however, an improvement in the U.S. construction market has significantly increased the company's sand and gravel shipments.
In the fourth quarter of 2013, Polaris expects to ship more than one million tonnes south of the border.
In 2010, it shipped one million tonnes the entire year.
And within the next 20 years, construction projects around San Francisco are expected to exceed the area's sand and gravel resources, requiring more imported supplies.
"Our turnaround has been, without a doubt, because of the construction industry rebound," added Wilson.
Polaris ships its sand and gravel, in 80,000-tonne loads, from its Orca Quarry in Port McNeill to terminals around San Francisco.
It owns and operates one of those destinations, the Richmond Terminals, north of Oakland, California.
The company is in the midst of expanding its shipping destinations by recently obtaining a new terminal in the Port of Long Beach on a 20-year lease.
Wilson said he expects Polaris to "move its first materials through there this year."
Polaris is also considering the development of a granite quarry in Port Alberni.
The Eagle Rock Quarry project has an estimated 100-year resource lifespan.
If Eagle Rock is built, Polaris forecasts that it will produce up to two million tonnes of granite per year by 2020.
"It's a huge resource," said Wilson.
Polaris at a glance
- Working capital: $12.3 million, including $10.3 million cash
- Debt: no long-term debt. Polaris leases large mining equipment from Caterpillar Finance. Lease payments in 2013 were approximately $738,000
- Property, plant and equipment: US$61.9 million
- Total assets: US$79.6 million
- Market cap (as of September 30): $120 million
- For 2013, about 95% of Polaris' sales will be made in the San Francisco Bay area; the remaining 5% went to Alaska and Hawaii
SOURCE: Polaris Minerals Corp. corporate presentation, September 2013
Tech boom to benefit Polaris
According to a Dundee Capital Markets report published in November, the investment bank believes Polaris could benefit from San Francisco's technology boom.
Twitter's initial public offering, reads the report, "is about to create more millionaires, more jobs and more technology investment in San Francisco."
As a result of that investment, more technology companies are expected to move to San Francisco, to open offices, and Dundee believes that any boost in residential and commercial projects "could increase demand for [Polaris] aggregates."
Polaris will also benefit from an increase in cement consumption in 2014. The Portland Cement Association forecasts a 9.2% growth in cement use in the U.S. in 2014.
Dundee has classified Polaris stock as a "buy" and forecasts the share price to reach $2.20 per share in the next 12 months.
SOURCE: Dundee Capital Markets November 2013 report, "Polaris poised for profitability"
