Inflation (And My Latest Folly) January 11, 2024January 12, 2024 INFLATION It sucks that things are painfully more expensive than they were pre-pandemic. There are two ways to get our buying power back to where it was: > One is for wages to rise . . . a condition generally associated with Prosperity. > The other is for prices to fall . . . a condition called deflation generally associated with the Depression. We seem to be on track for the former. Better, no? Lately, incomes have been outpacing inflation. Stock prices, and thus 401Ks, are at record highs. Inflation itself is back close to the 2% annual rate the Fed shoots for. Year over year, prices are up 3%; but month over month, the CPI is about unchanged from where it was in November. Even so, it’s really tough out there. The 1% are doing great — and Republicans are relentless in trying to lower their taxes and cripple IRS efforts to collect even that much. But most Americans are not in the top 1%. There were three principal causes of the inflation we suffered: 1. Putin’s invasion sent the world oil price soaring. A totally unjustified act of war that Trump saw as brilliant, but that caused Americans great economic pain. And before you blame Biden for shutting down U.S. oil production, please note that we’re currently pumping more than in any year under Trump — more, indeed, than any country in history. (ENVIRONMENTALISTS: Until energy needs can be lowered by means of increased efficiency and conservation . . . and met by means of renewables . . . someone has to make up the difference . . . the profits from which will flow somewhere . . . enriching someone. It doesn’t matter to the climate crisis whether it’s Iran or Russia or the U.S. So better us than them, not least so that we can use the tax revenue from those profits, and some of the profits themselves, to fund and expand the massive climate-change initiative President Biden has launched.) 2. The pandemic massively disrupted supply chains around the world. One could argue that if Trump hadn’t slashed Obama’s forward-deployed NIH teams in China and elsewhere the pandemic might have been contained. But rather than blame him for the pandemic, I think it’s enough to say for the purposes of this discussion that it surely wasn’t President Biden who caused the pandemic or those supply chain disruptions. 3. The American Rescue Plan and other efforts to avert the depression that widespread business and personal bankruptcies could easily have caused. Would we have today’s record low unemployment and record high stock prices had more modest efforts been made? Maybe. Maybe not. But trimming those efforts would have done nothing to avoid Putin’s higher world energy prices or COVID’s supply-chain disruptions. So blame Biden some of the inflation we had in those two years (largely gone now) — but credit him, if you do, with averting the recession or depression and financial collapse that would have hurt a lot worse. MY LATEST FOLLY Summarized in this press release. Buy shares of RNGE, if you do, only with money you can truly afford to lose. As long-time readers know only too well, that is not an idle warning! I’ve made this longer analysis microscopic lest it detract from the much more important topic above. It appeared on MicroCapClub.Com by Michael Liu whose firm — like me — has an investment in RNGE at 15 cents a share. To read it, just cut and paste it somewhere and increase the font size: Range Impact was created in early 2022 as a play on the coal mine remediation services industry. Since that time, they’ve grown revenues from zero to $15 million in annual revenues and profitable. The two biggest strategics in their industry own 23% and 30% (50%+ combined) of RNGE’s shares that they acquired through placements. These strategics are now funneling $10s of millions of business to Range as their strategic services provider. Range was created by the team of Joseph Loconti, who has overseen several public multi-baggers throughout his career, including founding $3 billion CBIZ (alongside Wayne Huizenga), which was a 10 bagger one year after its IPO and a 40-bagger through today. History The Range story started when Joe Loconti and his family office, fresh off a big win, invested $5 million into a tiny microcap biotech called Vitality Biopharma. They didn’t think much of it. It was just another high risk-reward position in the portfolio. Unfortunately, over the next 6 months, Vitality’s stock was delisted and investors realized Vitality’s management had defrauded them. In 3 years Vitality’s stock had declined from $8 to <$1. Loconti was forced to intervene and wound up replacing the entire board and management team. Any normal investor would simply write off the loss and move on, but Loconti had brought in friends and family in this deal, and felt beholden to Vitality’s other legacy investors to “make them whole” again since he now controlled the entire company management. However, Loconti knew nothing about development-stage biotech. So for the new direction of Vitality, Loconti and his team focused on something they understood very well: Coal mine remediation. Over the next 3 years, they built a remediation services company from the ground up. Small acquisitions here and there, buying equipment, hiring employees one by one, and suddenly Vitality Biopharma had transformed into Range Impact, with 50+ employees operating 60+ pieces of equipment doing over $3 million of revenue per quarter. Why is Range Unique? It’s likely that nobody besides Loconti’s team could have executed this strategy so successfully. It’s hard to break into the coal remediation services industry. The most important factor for winning remediation contracts is prior experience, and without contracts you can’t have prior experience so this chicken and egg problems is a huge barrier to entry. Range circumvented this problem because Loconti had prior strategic relationships in coal mining. First, his family office owns Continental Heritage, the second largest provider of coal mine surety bonds in the US. Surety bonds are guarantees from an insurance company that if the coal miner goes out of business, the mine is still funded for remediation/asset retirement obligations. In short, Continental guarantees that a coal mine will be cleaned up. Through Continental/Loconti, Range also knows Indemnity National which is by far the largest surety bond provider in the US. Indemnity National and Continental own 50%+ of RNGE’s stock that they bought through placements around current prices. These are very valuable relationships because once every few years Indemnity/Continental are stuck with remediation obligations for a coal mine when the operator goes bankrupt. The insurers are forced to foreclose on the mine and take control of it, and are then stuck with $10s of millions of asset retirement obligations. All Continental/Indemnity cares about at this point is getting the remediation work done as cheapy and quickly as possible. This means they need a remediation services company that they can trust. And who better to trust than yourself? That’s why Loconti created Range. This is what happened ~2 years ago when Continental foreclosed on a large coal mine in West Virginia called Fola. Fola has ~$50 million of total remediation obligations and Continental decided to give all of the remediation work to Range. To date, Fola has comprised ~80% of Range’s total revenues, but they are in discussions to get a lot more mines under contract from Continental, Indemnity, and third-party mine owners. I’d expect that over the next few quarters Range can get another 1-2 major mine reclamation contracts from either Continental or Indemnity, which could double the size of their business in short order since the current revenue base is almost entirely just work on the one Fola mine. There are hundreds of thousands of acres of coal mine land that needs to be cleaned up in West Virginia and Kentucky. If you want to understand how big the opportunity is just watch this video. More On Loconti Joe Loconti is not someone that should be involved at all in a $30 million microcap. He’s had exactly 5 involvements in public companies and each one was a resounding success. – CBIZ – Loconti was Vice Chairman and it IPOed in 1995 at $1. The stock grew to $20 less than a year later (mainly because Wayne Huizenga was involved). They did 100s of acquisitions in a span of 5 years and today the stock is still a 40 bagger from IPO. – ProCentury Group – was a spinoff from CBIZ with Loconti as a large holder and Loconti’s long time business associate Edward Feighan as CEO. It spunoff in 2004 at $10.50 per share and was bought out in 2008 at $20 per share. – WCA Waste – Loconti’s team got involved in late 2009 at $3.50 and sold it for $6.50 in early 2012. – The Joint – IPO investor and provided them some debt financing over the years. – Vitality – TBD Keep in mind that Loconti’s family office primarily invests in private companies. These are just incidental investments for them that happened to be public but are indicative of the type of success that Loconti’s team is involved in. Loconti is involved in the oversight of Range as a large shareholder, but it’s really the CIO of his family office Michael Cavanaugh who is calling the shots. Michael is a former consultant and we’ve been very impressed by his ability to execute in the short time that we’ve known him. He bought $150k worth of stock in the recent placement and so is aligned with shareholders. What’s Next? Now it’s clear that this is a pretty unique situation. A very successful businessman’s team is involved in a very tiny microcap because of circumstantial reasons. He is able to quickly jumpstart Range’s operations because of all the strategic relationships he has in the coal mining industry. There is an easy path to market for the next 50-100% growth in the business by just taking on more of their strategic partners’ mines, but how does this become the 50-100 bagger that we all want in something as pent-up as this? First: AML Mines There are probably less than 5 mines in total that are owned by insurance companies like Continental, so that is a limited market opportunity. A much bigger opportunity is 100s of mines owned by the state of West Virginia and Kentucky through the abandoned mine land (AML) program. Before 1977, coal miners were not required to have reclamation surety bonds, so after miners drained the land for coal, they simply left. Over time those reclamation obligations were transferred to the state, which now owns 100s of abandoned mine lands that they have to clean up, with historically almost no funding to do so. The new Infrastructure Bill has changed this dynamic and is providing West Virginia and Kentucky >$100 million in funding per year to clean up AML mines. This is a much bigger TAM opportunity than taking on insurance companies’ mines, but will also be more competitive. I’d expect over the coming quarters RNGE will take on some AML contracts starting small and then consistently growing. The bulk of the Infrastructure Bill funding hits next spring which is when I’d expect the inflection to really begin. Second: Land Reclamation work is not a great standalone business. It’s lumpy, low margin, and competitive. The long term value of coal mines and RNGE is in the land. The ability to quickly and cost-effectively clean up several 1000 acres of land creates opportunity to monetize the land for recurring income. RNGE recently announced a small acquisition of a land parcel from Indemnity National to test out this strategy with solar farms. We’ll see what IRRs they are able ot generate with this land but I’d expect in the long-term we see RNGE find more creative ways to acquire they land that they are cleaning up and monetize it. Some examples of this would be partnering with Continental to acquire an AML mine (Continental takes on the reclamation liability and RNGE does the reclamation work and retains an option to monetize the land in the long-term). Conclusion Today RNGE is at 1x sales and will likely keep growing from getting more work from pseudo-related parties and the start of AML work. In a year they could get substantially more work from strategics giving them large individual coal mine reclamation contracts, and new funding from the Infrastructure Bill for states to clean up historic abandoned mine lands. In 5 years they should own large amounts of land that they’re cleaned up with high margin recurring income from things like solar farms. I know it’s a messy thesis but management gives me confidence. Loconti is one of the most successful businessmen around having founded companies with the likes of Wayne Huizenga and Michael DeGroot. And he is very committed to generating shareholder value, otherwise he would have just left this investment for dead years ago when the biotech fraud occurred. Loconti and other strategics have put in $10m+ of cash into this $30m market cap nanocap and they wouldn’t be involved unless they believed it had multi-bagger potential. The details on how to execute their strategy are a little vague for now but that’s because this company works at lightning speed. The entire current $15 million revenue business was built from scratch within the last 2 years. Who can say what happens in another two? I just think the stock will go up. Disclosure: I am an analyst at IFCM which recently participated in a placement with Range.