Calumet: The Clock Is Ticking

Catalysts Are Quickly Approaching & My Thoughts On Adding To My Position

I was planning to write about the platinum miners in the portfolio today, but I’m going to delay that a week to talk about Calumet CLMT 0.00%↑ again. I talked about it briefly in my video post earlier this week, and I did a little bit of buying yesterday. I’m also planning to add to my position in coming days. My original post from February is below if you want a summary of Calumet and an overview of Sustainable Aviation Fuel (SAF).

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Calumet Specialty Products Partners: Investing In Sustainable Aviation Fuel

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I have talked with a couple investors on Calumet, and the recurring theme is that the DOE loan announcement is where everything snaps into focus. I was listening to Twitter space last night on it, and it was a wealth of information. It was hosted by Zerosumgame and Ryan O’Connor, founder of Crossroads Capital. If you are even a little bit interested in the company, it’s worth a listen. Calumet’s going to be at a couple different conferences in the next three weeks, but I doubt they would be going to a SAF conference with the DOE on September 11th if the loan isn’t imminent.

Calumet When They Announce The DOE Loan

The Catalysts

Over the last six months, Calumet went from a broken MLP with no distribution to a C-corp. The conversion in July was a buy the rumor, sell the news event, at least short term. The shares are still way too cheap in my opinion, despite the bounce on significantly higher volume over the last two weeks. The corporate structure conversion is important, but not even close to what the DOE loan will unlock. This will sort of be a summary of what stuck out to me while listening to the Twitter space last night. Again, if you’re interested in the company I think you should listen to it for yourself, but let’s get into it.

The DOE loan will deleverage the balance sheet, kickstart the Montana Renewables (MRL) segment, and open up the potential sale of Calumet’s segments at higher valuations. They talk briefly about Performance Brands and Specialty Products Segment, but most of the Twitter Spaces was focused on MRL and the DOE loan. They think the loan could be $1B, potentially as much as $1.5B, but I don’t have a good way to handicap the actual size of the loan. The loan will be straight from the Treasury, so there won’t be any large delays. If it does turn out to be $1.5B, that will be very good news for investors.

Combined with the C-corp conversion, I think it will also lead to a lot of investor flows into the stock. Index buying is set to start in September, and they expect it to be somewhere in the ballpark of 10-12M shares over the next couple months. Calumet has just under 86M shares outstanding, so that’s a material amount of demand for shares. It doesn’t have much to do with the fundamentals of the business, but the mechanical demand for shares should be a tailwind for the share price. The C-corp conversion will also allow institutions to come in and buy shares, but it’s harder to guess what this might look like compared to index demand.

I can’t get bullish on anything if the fundamentals don’t make sense to me, but I don’t think the large financial flows will be the only buyers coming in. I was talking to a friend last week on Calumet, and he has more of a technical focus. He thinks that once shares clear $20 we are off to the races. I occasionally joke that technical analysis is astrology for men, but there are traders that use it, some more successfully than others. The point is that I think there are a lot of buyers that will be coming out of the woodwork over the next couple months. There’s a lot to digest there, but they say there are only two position sizes: too big or too small. I decided that my position in Calumet was too small given the current setup.

My Position