MHM: Additional US Processing Contract

First up sorry I did not get this post up yesterday as planned. With the Gold Symposium running tomorrow and Tuesday I have been working over the weekend so that I don’t have to worry about completing any clients work between presentations.

Any way on to the announcement! As I speculated in one of my earlier posts on MHM I thought a couple of the interested parties (suppliers) may not be interested in paying a fixed charge per tonne and would only consider coming to the table if we assumed ownership of the processed materials. From the suppliers view point they would then belive we are taking on all the “risk” associated with the processing contract. Obviously, those who have followed MHM closely know that the recycled components are actually very valuable and can deliver the same, if not better return than a standard tolling (or fixed price per tonne) agreement.

Last week’s announcement on the first contract was a tolling arrangement, however, Thursdays announcement was in line with my original thinking and is a “Tipping Arrangement” (MHM assumes ownership of the recovered materials). The contract runs for one year and will provide the customer with the opportunity to explore a tolling arrangement in the future.

The announcement then goes on to say that neither the name, nor the amount of salt slag/black doss supplied can be provided for confidentiality reasons. MHM are also engaged with a number of other companies with substantial slat slag and black Dross volumes.

Now, if we dig into these numbers a bit further we know that the first contract must be at least 100,000 tonnes per annum, because management stated that it was sufficiently large enough to justify the plant construction. At a minimum I think that would equate to 50% of the plant’s capacity (keep in mind the capacity will be between 200 and 250,000 tonnes p.a.).This second contract is most likely for a smaller supplier, under 50,000 and probably closer to 25,000 tonnes p.a. in my opinion. However, I could easily be wrong and it may be a large producer who only wishes to supply us with a small amount of slat slag/black dross to test the concept. Although they would then risk missing out on utilising our technology if the plant does not have enough capacity to meet their full needs.

If the above figures prove correct that means we have room for one more large contract or two medium contracts or three smaller contracts to make up the remaining 100,000 tonnes per annum capacity. After that they will have to start lining up for our second plant.

The second part of the announcement focuses on site due diligence and the land acquisition which is now expected to be completed by the end of January. MHM is also working to finalise the date of a press conference which will be held with senior government offices, during which details of the property purchase and availability of government incentives and support for the project will be released. Now in my opinion you don’t go to the trouble of announcing a press conference with “senior government officials” for some minor incentives here or there. You only do this is you have real news to report and if the impact on the local economy is going to be significant. I think these incentives have the potential to really surprise the market.

Finally, I just wanted to comment on the MHM share price. It did finish the week very strong, up 10 cents to 97c on Friday alone. I know I have stated that I would buy more shares after the plant announcement, however, I feel the train is leaving the station so to speak. If I can buy anywhere at or under 85 cents I will probably double my stake. If not I may have missed out on this occasion and will have to consider the size of my holding at a future date.

Link to announcement.