Alpha Metallurgical Resources: The Long Term Investment Thesis
What happens when there are no shares left to buy?
“We are not happy when things we're buying go up in price. We want them to go down and down and down."
- Warren Buffett, 2004 Meeting
Two years ago I flew back to the country where I was born. Bosnia. Most people couldn’t find it on a map. It’s famous for “ćevapi”, the second most popular dish on earth. You can’t grill proper “ćevapi” without coal. Strange how coal keeps showing up in my life.
They make “ćevapi” here in Germany too. But restaurants here cannot use charcoal grills because of smoke, smell, ventilation rules, and German bureaucracy, so they cook them on electric grills instead. The result? The “ćevapi“ in Germany taste like shit. 🙂
Anyway.
In Bosnia I was giving a presentation about my new book. Afterwards, I met the director of the Sarajevo Stock Exchange and some great people. Then I started hunting.
What I found was a graveyard. Nobody buys stocks in Bosnia. Nobody. There are trading days with zero volume. Zero. No one in the entire country buys or sells a single share.
It wasn’t always like this. Back in 2008 the Sarajevo Stock Exchange went vertical. Every ticker on the board exploded. People took loans to buy whatever they could grab. Brokers slept in their offices. Pure mania.
Then it cracked.
And to this day the market is dead. Stocks are hated. If you want to buy something, you call your broker on the phone like it’s 1985. Corruption is high. Trading is difficult. But prices are absurd.
I found a company trading at $0.65 per share. It has just 21,182 shares outstanding, giving it a market value of less than $15,000. It is a declining business, but the assets behind the company are worth roughly $5 million. Most of those assets are tangible. Buildings, land, and investment properties.
Price per share is $0.65. Book value per share is $225. Good luck finding that on the New York Stock Exchange. I actually tried to buy the whole thing. There was just one problem. The stock had not traded since 2017. I am fairly sure most of the shareholders are dead.
That was not even the interesting part.
The interesting part was that although everything in Bosnia is dirt cheap, I found a company, a boring cement business. Cyclical. Nothing special. And yet it traded at more than 30 times earnings. The stock is up seven, maybe eight times in few years.
Why?
They started putting shareholders first. Dividends. At first they paid out 20 or 30 percent of profits. Then they kept raising. Today they pay out 100 percent. Every cent. A handful of investors saw what was happening and started fighting for shares. The most boring company on the Bosnian market became the most wanted. The market handed a cement plant a tech multiple.
This is where Alpha enters the story.
If you like to focus only on signals, here is it is. The company is returning 100% of its free cash flow to shareholders. Dividends are nice. But retiring shares is another level.
The rest of this post is the long term thesis and what I believe could realistically happen even this year.
What happens when there are no shares left to buy?
