FIRST US PROCESSING CONTRACT

FIRST US PROCESSING CONTRACT 
ASX Release – 4 November 2011


MHM Metals Limited (ASX:MHM) has secured its first overseas processing contract for the supply of feedstock 
to MHM’s first US salt slag and black dross processing facility. The five year contract has been structured as a 
tolling arrangement, where a fixed price per tonne is charged to the customer with MHM returning aluminium 
and flux to the customer while retaining ownership of recovered aluminium oxide.


This is a significant development for MHM, marking a milestone in the global expansion of the company’s 
aluminium waste recycling technology.


Due to the dynamics of the US aluminium industry, the details of the contract must remain confidential and 
MHM must refrain from revealing the counterparty or contract terms.  


Further companies that engage contractually with MHM will likely also require contract information and 
company names to remain confidential prior to commencement of operations at MHM’s first US plant.  A 
number of US aluminium companies accepting the MHM solution may experience reduced or denied landfill 
access or large landfill cost increases if identified as contracting with MHM.  This is particularly problematic in 
the period between contracting for waste recycling and commencement of MHM’s operations.


Due to contractual limitations MHM also cannot reveal tonnages to be processed.  However the completion of 
this contract provides sufficient volume for MHM to commence with US plant construction.  There will likely be a 
number of confidential contracts entered on these terms and MHM intends to later provide overall contracted 
supply volumes.  The anticipated throughput of the first US plant remains 200,000-250,000 tonnes per annum.


This supply contract is subject to a satisfactory visit by the US aluminium company to MHM’s Australian 
operations in the near future.  The contract also contains clauses that permit the contract counterparty to 
cancel the contract should information as to its identity become public prior to commencement of MHM’s US 
operations.


MHM continues to engage with a number of other companies with substantial salt slag and black dross 
volumes and management is working diligently to secure additional processing contracts in the near future.

---

My thoughts only

This is probably how much our AL80 worth per tonne. (Only guesswork)

==========================================================

From 2010 Annual report page 9

Gross Revenue: $2,735,528
Net profit: $1,008,021
Once off landfill cost: $545,829
Total plant throughput: 13,627 tonnes from Alcoa and Sims

So the actual net profit if landfill didn't happen is
$1,553,850 or ($114.03/t) and actual cost of production is $1,181,678 or ($86.72/t)

----------------------------------------------------------

From 2011 Annual report page 6

When Geelong plant operates at full capacity, it is expected to process 35,000t of landfill salt slag and 24,000t of salt slag and dross from Alcoa and Sims.

Recovered products 

based on 35,000t of salt slag MHM can recover
3,500t of aluminium
14,000t of AL80
17,500t of salt&potassium 

based on 24,000t of salt slag/dross MHM can recover
9,600t of AL80

Revenues/EBIT/Cost

Now assume MHM can sell aluminium at $2,000/t and AL80 at $P per tonne.

As we know that no revenue from AL80 in FY2010, so we can assume the net profit per tonne for processing the material for Alcoa and Sims is about $114.03.

1. Alcoa/Sims
Then based on 24,000t

24,000t x 114.03/t = $2,736,720 (pre-tax profit to MHM)

revenue or net profit from AL80
9,600t x $p/t x 60% = $5,760 x p

2. Landfill

Now, the salt slag from landfill.
cost of production on 35,000t of salt slag
35,000t x -$86.72/t = -$3,034,500
But Alreco only received 60% EBIT therefore the cost should be 60% of -$3,034,500 = -$1,820,700

revenue or net profit from aluminium and AL80
3,500t x $2,000/t x 60% = $4,200,000
14,000t x $p/t x 60% = $8,400p

salt/potash maybe worth $200/t
-------------------------------------------------------

Now, MHM has said Geelong plant expect to earn $8.6m pre-tax profit once operate in full capacity. If I sum up all the components above.

($2,736,720 + 5,760p) + ($4,200,000 + $8,400p) - $1,820,700 should equal to $8,600,000.

Then I guess in MHM's valuation they have assumed  AL80 valued at $246.43ish /t

--------------------------------------------------------

Note: the cost of production per tonne may not be accurate, for example on September 2011 quarter total throughput is 5,540t but cost of production is $990,000 which works out to be $178.7/t

--------------------------------------------------------

In conclusion,

to value MHM's first US plant we can use these figures

tolling profit: ~1.33 x $100 = $133 (100% profit in oversea operation)
Al80 price per tonne: ~$246

========================================================