On Monday in America (Tuesday Australia), MHM will be holding a press conference with local and senior state government officials to provide information on their new US Salt Slag/Back Dross Processing Plant and the associated government grants and incentives. For those of you who are on Hotcopper you may have seen some of my posts on this, however, I feel it is important that they also rate a mention on my blog.
Firstly, I am anticipating a fairly strong batch of incentives and grants. I think the incentives will be more strongly weighted towards tax concessions and items that do not require the government to cough up money in advance, but once converted to a dollar benefit these will be fairly significant in my opinion.
The reason why I believe this is the case, and why I think the market is underestimating this potential, is because in Australia we are so used to politicians being invited to an event to cut a ribbon, say a few nice words and mention that the government is going to spend $x on a major road upgrade nearby that should have been done 20 years ago (i.e. hardly any direct benefit to the actual company). However, in America, each state is very independent and they are all crying out for jobs. This is especially true in many of the original manufacturing states that have been hit hard over the last 10 to 20 years. As a result the governments main concern in these areas is generating jobs, as this will keep the people happy and them in a job.
Inviting “senior state officials” in America amounts to a lot more than just having your local State MP (Australian) come down to your school. Furthermore what Politician would associate themselves with a project that isn’t going to bring massive benefits to the area or would be met with a backlash from local residents.
A couple of other points that are worthy of consideration in regard to the grants and incentives is the following:
· Old industrial America is dying. Take a look at the car industry over there. Each of the major producers (GM, Ford, Chrysler) have all faced major financial problems at some point in the recent past. To say that you are opening an “old industrial plant” is good, but saying that you are opening an environmentally friendly, “new technology” plant that essential has an infinite supply of material/life (Aluminium can keep being recycled) is a lot better both from a re-election, jobs and environmental stand point.
· The Politicians invited to the event and who took a part in the negotiations will no doubt be happy to mention how they bought an “environmentally friendly” operation to the state and will use it in any upcoming elections.
· The rail access to the plant was the game charger. Instead of building two or three plants in separate states MHM can consider doubling or tripling the capacity of plant one. As a result the state can keep all of the jobs to themselves, instead of seeing MHM spread them out across one or two other states. This ensured that MHM had a stronger position from which to negotiate in my opinion.
Finally, I wanted to comment on the potential of this announcement to move MHM’s share price. Obviously no one has a crystal ball and with Europe still in a mess it is a very volatile market, but some things I will be looking out for that may have the potential to surprise the market (and help push it a little higher are):
1. Any solid confirmation of financing or that no capital raising would be required.
2. Anything that mentions a second plant or a potential upgrade to plant one happening in the future. (especially with the rail spur/access on the property).
3. If the value of the cash/land/contra incentives exceed more than 10% of the plant construction cost (i.e. >$2m).
4. Any other incentives that may provide cheap financing or long term tax benefits (10 years plus).
There has also been some speculation about whether or not we will go into a trading halt on Friday (today) or Monday. I guess it is always possible, but I have my stock and am happy either way and look forward to what should hopefully be a good Tuesday.
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