Following my recent post on how the Silica project could be spun off there was some discussion on Hotcopper with another suggestion put forward. I believe this idea has merit, but would be worth less and more risky for any shareholders in the new silica company in my opinion. In summary it involves the following steps:
Step One:
MHM spins-off the Silica division into a new company. This company holds all our silica assets and signs an off-take agreement with a company that is to develop the smelter.
Step Two:
The external party, let’s just use Wacker Chemie AG as an example, would then develop the Smelter by themselves. The new MHM Silica Company would also receive a free carried stake (say 5% in the smelter). This is akin to receiving a 5% share of projects.
Step Three:
The Silica company then begins mining and obviously has a guaranteed customer with the off take agreement signed with the smelter own.
In this scenario the spun-off silica company is more involved in the mining side of the operations, rather than the smelter operations. It is also a little harder to run the figures see as we don’t yet know the scale of mining operations required to support the smelter.
If this indeed turns out to be the strategy of management then I would expect a return less than that outlined in the previous post. I do however believe it could still be worth around 10-20 cents per share just using some back of the envelope figures.
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