Yesterday MHM put out their Quarterly Report (to 31 Dec 2011) and my first impressions are that management cannot understand the poor performance on the share price. This is evident by the fact that the announcement starts off by stating our current cash reserves ($5.9 million), planned road shows for Australia, New York, London and Asia and the numerous references to financing that is non-dilutionary.
The international road shows are planned to take place before the end of March 2012 and are designed to inform and engage new investors. This initiative also follows the recent visit of the Geelong facility by a number of stockbrokers interested in publishing research on MHM. If all goes to plan I would expect that the next three to six months will deliver a constant flow of new broker reports which will hopefully garner some support for the company and its share price.
As, usual the rest of the report is broken down into our various operations. As a result I will do the same for my commentary.
Australian Operations:
For December 2011 quarter gross cash receipts were just over $1 million, with further trade receivables of $941,644. This obviously doesn’t look like a great figure but I have previously commented that it will not be until the end of the June quarter where we see results that represent a fully operational plant. The company all but confirmed this in the announcement by stating that the stockpile of partly-processed salt slag is expect to take 3 months to reduce. That would take us to the end of March 2011, we then need three months of full operation which takes us to the end of June, before the results are released in July.
On another positive front the customs paperwork issues with the AL80 have been resolved with the first shipment to depart by the end of February 2012. This has obviously been a trying process, but it was important that it was overcome to ensure that MHM is able to deliver on their stated profitability targets.
Finally, the salt crystalliser is facing some delays. This is not an issue for the Australian operations; however they do need to get it sorted for the American operations. They have plenty of time though as this would not need to be installed for another 6-9 months at a minimum.
American Operations:
The summary of the American operations is pretty much a re-hash of old information. The purchase of the building is however, expected to be funded from existing cash reserves. The purchase price is $835,000.
The update also included new information of the financial projections associated with the project. The preliminary budget estimate is US$25 million for the construction of a 250,000 tonne per annum plant. The targeted earnings, once operating at full capacity will be $25 million per annum. MHM also expects the plant to operate at full capacity (250,000 tonnes) within 12 months of commissioning. In case you missed that MHM stated 250,000 tonnes, not 200,000 which was the lower estimate they had previously provided.
The announcement then goes on to talk about the financial impacts which I have previously mentioned. It is clear that a capital raising is the least preferred option. And when you consider that the 24.3 million options that will expire on 31 August 2012 will generate $4.86m, plus our current cash position of circa $5 million and increase in profitability from this point forward (with full operations at our Australian facility) it is clear that even if there was a capital raising it would be very minor.
The financing will be finalised following the completion of the plant design, costing and scheduling with are due in the coming months.
Silica Division:
For those of you who have been following my blog for some time you may recall that I stated a couple of months back that the Silica project was, in my opinion, 12 – 24 months away. There was then a news article shortly after which provided some speculation on the project and I changed my opinion to say news may be closer than we think. Well, it certainly is close. Perhaps less than six months away with the announcement stating that “MHM is actively engaged with corporate advisers and has a targeted timeframe of concluding any spin-off by mid-2012, depending on marketing conditions”.
Obviously such as statement would not be made unless MHM thought they were close to finalising a deal. I will provide some further analysis on what this deal may be worth to MHM holders shortly.
Exploration Projects:
As the market has previously been information MHM is looking to divest all other exploration projects. This will save MHM $300,000 in expenditure per annum.
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