Page 67 - 2019 Annual Report
P. 67

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
           The Company is diligent in its focus on land opportunities, including potential new sites (greensites) and expanding locations.
           Land purchases are usually opportunistic and require the Company to be flexible in its ability to secure land. Land purchases
           can include contiguous property around existing quarry locations. Such property can serve as buffer property or additional
           mineral reserve capacity, assuming regulatory  hurdles  can  be cleared and  the underlying geology supports economical
           aggregates mining. In either instance, the acquisition of additional property around an existing quarry allows the expansion of
           the quarry footprint and an extension of quarry life.

           Magnesia Specialties Business

           The Magnesia Specialties business manufactures magnesia-
           based chemicals products for industrial, agricultural and
           environmental applications  at its Manistee, Michigan
           facility. The Magnesia Specialties business produces and
           sells dolomitic lime from its Woodville, Ohio facility. Of
           2019 total revenues, 69% were attributable to chemicals
           products,  30% were attributable to lime and 1% was
           attributable to stone.

           In  2019, 81%  of the lime produced was sold to third-
           party  customers, while the remaining  19% was used
           internally as a raw material for the business’ manufacturing
           of chemicals  products.  Dolomitic lime products sold to
           external customers are primarily used by the steel
           industry, and overall, 35% of Magnesia Specialties’ 2019
           total revenues related to  products used in the steel
           industry. Accordingly, a portion of the segment’s revenues
           and profits is affected by production and inventory trends within the steel industry, which are guided by the rate of consumer
           consumption, the flow of offshore imports and other economic factors. Steel production in 2019 increased 1.8% compared
           with 2018. The dolomitic lime business runs most profitably at 70% or greater steel capacity utilization; domestic capacity
           utilization averaged 80% in 2019. The chemical products business focuses on higher-margin specialty chemicals that can be
           produced at volumes that support efficient operations.
           Total revenues of the Magnesia Specialties business in 2019 were predominantly derived from domestic customers, and no
           single foreign country accounted for 10% or more of the total revenues for the Company. Financial results can be affected by
                                                                 foreign currency exchange rates, increasing transportation
                                                                 costs or weak economic conditions in foreign markets. To
                                                                 mitigate the short-term effect of currency exchange rates,
                                                                 foreign transactions are denominated in United States
                                                                 dollars. However, the current strength of the United States
                                                                 dollar in foreign markets is affecting  the  overall price of
                                                                 Magnesia Specialties’ products when compared to foreign-
                                                                 domiciled competitors.
                                                                 A significant portion of the Magnesia Specialties business’
                                                                 costs is of a fixed or semi-fixed nature. The production
                                                                 process requires the  use of natural  gas, coal  and
                                                                 petroleum  coke. Therefore, fluctuations in their pricing
                                                                 directly affect operating results. To help mitigate this risk,
                                                                 the Company has fixed-price agreements for approximately
                                                                 62% of its 2020 energy needs for coal,  natural gas and
                                                                 petroleum coke. For 2019, the segment’s average cost per
                                                                 MCF (thousand cubic feet) of natural gas decreased 4.7%
                                                                 versus 2018. Given high fixed costs, low capacity utilization
                                                                 can negatively affect the segment’s results of operations.





           Celebrating 25 Years as a Public Company                                         Annual Report  ♦  Page 65
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