VYS 1.22% 8.3¢ vysarn limited

one of the stocks to own in 2010

  1. 12,893 Posts.
    Macquarie Harbour Mining Limited (MHM/MHMO): What attracts me to MHM is the Aluminium Salt Slag business they are developing. Initial profits will be driven by creating a processing business at a plant to be acquired from Sims Aluminium Pty Ltd near Geelong in Victoria. Completion of the deal is due in mid January in 2010. All conditions pursuant to the acquisition have now been fulfilled so the commencement of the waste processing business appears to be a formality.

    The opportunity which MHM has seized arose out of changes introduced by the EPA which restrict Aluminium companies from dumping Aluminium Salt Slag as landfill waste. Aluminium Salt Slag is a waste stream that results from the recycling of Aluminium, a by-product that has traditionally been placed as landfill. The changes in legislation introduced by the EPA have meant that the secondary aluminium industy must find a solution in order to remain viable. Two directors of MHM have developed a closed loop process which processes aluminium salt slag but produces no waste. Three products are produced, aluminium metal, salt, and non metallic aluminium oxide. All products can be sold meaning no waste material needs to be consigned to landfill. Under the licensing deal MHM will be entitled to 60% of the profits from the Australian business

    The Australian business is expected to generate net profits attributable to MHM in the vicinity of $8m per annum or 7.5 cents per share, putting MHM on a potential PE of 3.5 in 2011 (based on the December 31 close of 26 cents). There is additional upside to these figures as a result of the processing agreement announced with Sims Aluminium Pty Ltd on the 24th of December. Net profits from this agreement are not included in the $8m quoted above.

    One of the key factors in deciding to maintain a strategic investment in MHM/MHMO is the fact that their primary customer is Alcoa. The real long term potential of this stock comes from the potential to expand the business to the US and elsewhere. In the US alone they produce 40 times the amount of Aluminium Salt Slag compared to Australia. Discussions have commenced regarding the establishment of two processing plants with potential profits margins of $20-30m per annum, on which MHM would have to pay a 5% royalty of gross income to the technology owners. Alcoa is proactive in terms of its desire to be seen as being environmentally responsible, which I believe, is leading to a strong interest in developing manufacturing plants using the process in the US. We should start to hear more news on the US expansion during 2010 after the Australian operations are up and running.

    A couple of cautionary comments with regards to this opportunity would be that the technology, whilst proven in a pilot plant, needs to operate with higher processing volumes. However I am assured that this is unlikely to present any problems because it is a simple scale up scenario. Secondly the process is not patented but relies on the use of a proprietary chemical and could therefore be easier to replicate in the future by potential competitors.

    MHM also has the additional potential of developing a Silica mine in Tasmania should Wacker AG of Germany, or another organisation decide to locate their manufacturing facility near their resource. Secondly they also have some very prospective exploration ground for gold and nickel, South of Macquarie Harbour, in Tasmania, with a planned program in 2010 designed to firm up drill targets for 2011.
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