Where Do I See MHM Going In 2012?

MHM Metals had a tough year in 2011, with their share price hammered throughout August and September, combined with the delays they faced in bringing their Australian operations up to full capacity and later than expansion into the US.

Out of all of my holdings this stock has probably given me the most cause for concern, but on a long term fundamental basis I am still very bullish on its prospects (hence my recent purchase of additional shares). I’m not 100% sure if 2012 will be a year of strong gains in the SP as we will only be moving towards production that will commence in 2013. I think the ability of MHM to appreciate will be largely tied to the movement in the overall stock market. It is also likely to remain fairly volatile until we can get some runs under our belt and steady figures from our Australian operations. I would not expect these figures to show a clear picture until the end of the second quarter in 2012 as we still have a backlog of partly processed salt slag to clear that will take 3 months.

In regard to the issues I will be keeping a close eye out on. These are the key points that come to mind:

1.    Information on the financial projections associated with our first US plant. Expectations are for EBIT to fall in the range off $20-$25 million and until we get confirmation of these figures it will be hard for the market to value MHM accurately.

2.    Confirmation on funding. MHM Metals have stated that their preference remains for non-dilutionary funding, however until the money is secured it will always be a threat that remains in the back of the mind of holders. I feel the chances of dilution will increase if we actively pursue a second or third plant in quick succession.

3.    Details of any future expansion plants. Whether it be a second plant or the increase in capacity of plant one, this business is all about volume. To really generate the gains I am aiming for MHM needs to follow a continuous expansion plan. So far the management team seem to be towing the line in this regard so hopefully they keep running with it. This does however impact on point two, as the more expansion we undertake the more funding we need. It is therefore important that management find and maintain the fine balance between the two.

4.    The identification of any salt slag landfill that can be processed in the US. The identification of suitable landfill is basically like finding money for MHM and will help run the plant at its maximum capacity while generating additional returns.

5.    News on the Silica project. As per my recent notes on the MHM Monthly Update I think this news is at least 12 – 24 months away. If anything is to happen I expect it will be in the back end of 2012.

On top of that it would be encouraging for the share price to lose some of the volatility that has been a trademark of its recent performance. This may be aided by the international and Australian road shows that will be taking place in early 2012, as well as, the research provided by brokers who have indicated they are interested in following the stock.