Compass Minerals Finds True North With Location, Geology

Jeffrey Stafford: Compass Minerals is a wide-moat company that many investors may not be familiar with. The company produces road de-icing salt and fertilizers primarily at facilities in Ontario, Louisiana, and Utah. Compass' business model is pretty simple. It takes resources out of the ground, but importantly, it does so at a very low cost.

Compass has built this formidable cost advantage based on two characteristics of its largest mine: location and geology.

First on location. Salt has a low value-to-weight ratio. Basically, it's cheap for how much it weighs. This makes markets very regional. And because water transportation is much cheaper than trucks, mines that are close to the water tend to have a shipping cost advantage. Compass' largest mine is in Goderich, Ontario, right on Lake Huron with access to a large swath of the Midwest through waterways. And lucky for Compass, which makes deicing salt, this region tends to get a lot of snow.

In addition to location advantages, the Goderich mine benefits from favorable geology in the form of a large and thick salt seam that lowers production costs.

So adding together location and geology, Compass occupies an enviable position on the salt cost curve, and we expect the company to produce economic profits for many years to come.