Some MHM shareholders are a hard bunch to please! On Friday MHM released a progress report and although it does appear that the signing of a US agreement has been pushed back slightly there were a number of significant statements within the announcement that could increase the scope and size of the overseas operations and therefore positively contribute towards the company’s revenue and profitability.
Firstly in regard to the Australian operations the announcement stated that “Operations in Geelong continue to progress. MHM Metals Ltd (ASX: MHM) subsidiary Alreco is pleased that aluminium recovery from recycled slat slag is far exceeding expectations. This additional volume of recovered metal has led to refinements to optimise the process”. As this is the first facility utilising this technology it is not uncommon to experience teething problems, however I that the above statement highlights that a significant stage has been passed and the next quarter should finally deliver on the projected outcomes for the plant. In my opinion the application and benefit of the technology has now been proven and de-risked.
The announcement then moves on to the eagerly anticipated US operations update. Recently MHM appointed John Pugh to an executive role. Mr Pugh had previously worked for Smelter Services Corporation for 21 years and his appointment to MHM was supported by his previous employer. It appears that he is already delivering for the company with MHM stating that “The appointment of John Pugh in an executive role has yielded positive results for MHM, and feedback also suggests this was well regarded by the US aluminium industry.”
The company then goes on to talk about a new recycling opportunity, “Black Dross”. Black Dross is a by-product from reverberatory furnace operations and generally has similar composition to salt slag, albeit often has a higher aluminium content (therefore potentially more valuable in my opinion). Currently MHM are in discussion with a number of companies regarding this material, however it could result in the emergence of an additional revenue stream for MHM.
I also believe this may have had an impact on the site selection as MHM would want to ensure that the location and the design of the plant can process material for as many clients as possible and also achieve cost efficiencies associated with the processing black dross and salt slag in the one location. The announcement does allude to this fact by stating that “MHM is assessing a number of sites in the US for construction of the first salt slag and black dross recycling plant”.
Furthermore it now appears that expansion into the US could be quickly followed by Canada with a substantial volume of material being identified in the region, along with companies supportive of MHM’s business.
So although the signing of an agreement may be somewhat delayed the end result could be substantially larger. The only concern I now have in regard to this is the impact on project financing. Obviously a larger plant costs more money and we therefore need to consider the methods of funding, both debt and equity. I have cash in the portfolio and am happy to acquire more shares in MHM, however, at this stage I will wait and see how the company plans to fund the project in case a capital raising also forms part of the picture.
Link to the announcement.
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