So what exactly is Klarman getting out of this investment? The quarry investment could provide an exponential return over time. Based on recent market prices, the volume of limestone in the proposed quarry is worth more than $6 billion. And its value could be on the rise. The Ontario government expects demand for limestone and other rock used in construction to increase by 13% annually over the next two decades, driven by an ongoing population and construction boom in the province.
In a broader sense, Klarman's willingness to put money into a Canadian quarry is reflective of his view that stocks today offer little value. The really big potential gains, he believes, are in more complex investments. Klarman is not bullish on the recovery. "With most of the world's developed economies grappling with structural budget deficits and a grim outlook," he wrote to clients last July, "and because all foreseeable solutions to excessive borrowing and spending will dampen global economic activity, we find it hard to be optimistic about the economy."
At Baupost's client meeting this past October, Klarman told investors that stocks were neither cheap nor expensive. It is the Federal Reserve's policy of near 0% interest rates combined with government bailouts, he believes, that have driven asset gains since the financial crisis. "Massive government intervention in the wake of the 2008 financial crisis is now widely considered to have been a good thing," he wrote in July. "We remain unconvinced." He worries that the next crisis could be worse than the one in 2008.
Baupost's own mining venture in Ontario, meanwhile, has gotten bogged down amid rising anger toward Klarman and his partners. Wealthy Toronto residents with weekend homes near the proposed site have taken up the fight, and STOP THE MEGA QUARRY signs have appeared downtown. In September, Ontario's Ministry of the Environment ordered a full environmental assessment, an unusual move that could require two years of studies before the project can proceed. But as Klarman knows well, the payoff on a great investment is always worth the wait.
Here is the link to the full article on Fortune's website:
The article also provides great insights into Seth's current thinking on the macro environment and his investment strategy.