MHM Metals Limited updates on its recyling operation

MHM Metals Limited confirms that salt cake and dross recycling operations in Geelong continue to perform well. Daily operating tonnages are continuing to exceed incoming material allowing reduction in our current stockpile of partly processed material. A recently announced trial of small changes to the salt cake recycling process has been very successful. These changes will be implemented on a permanent basis following the delivery and installation of necessary equipment, expected no later than the second week of June 2012. These small changes relate to the handling of material in the process. When installed we expect the Geelong facility to operate at 60,000 tonnes per annum of combined salt slag and dross.

MHM and Alcoa are exploring mechanisms to enable MHM to commence the processing of Alcoa’s 160,000 salt cake landfill as quickly as possible. This is an important event for MHM as it will enable profitability of the Geelong facility to increase to the forecast $8m EBITDA per annum during the excavation of the landfill. MHM aims to update the market on this in the near future.

The first shipment of AL80, MHM’s aluminium oxide product has arrived at its destination port and has cleared two stages of a three stage customs process. Bandfield Australia have advised MHM that no issues are anticipated in completing the third stage. MHM continues to investigate appropriate mechanisms to spin off the silica division of the company. Negotiations are progressing with various project stakeholders and the Company will provide a more detailed update to market when the project reaches a more definitive stage.

Design of MHM’s first US aluminium waste recycling facility is nearing completion with independent confirmation of capital costs underway and environmental permit applications being prepared. Management has made a strategic decision to build the 250,000 tonne per annum plant in two 125,000 tonne per annum stages, rather than building the entire 250,000 tonne per annum and having an initial period of surplus capacity. This will lower initial CAPEX for the facility and reduce idle capacity while additional processing contracts are finalized. It is expected this strategy will enable the second stage to be funded from internal cashflows.

The rail spur design and costing is completed with a projected cost of USD 600,000. MHM has received USD 250,000 grant for the rail spur and the balance of the cost will be funded as part of the overall financing package for the Russellville facility. Preliminary site works that do not require permitting are occurring including erecting security fencing around the facility, an upgrade of the office for immediate use, construction of the parking area and reinstatement of staff amenities. A large steel water tower will be sold in the coming weeks for a modest cash return.

Management are confident of soon securing an additional significant US supply contract. It is important to note that timeframes for finalizing the contract are determined by the other party and that MHM management is doing everything it can to cement the deal. Management appreciates that this contract will be an important milestone not only for our shareholders but also as a precursor to complete financing of the Russellville facility. Contract discussions with other suppliers of salt cake and black dross are ongoing and positive. The return of executive director Ben Mead to the US this week will assist in turning those discussions into new additional supply contracts.

Investigation of debt, hybrid and equity financing mechanisms for the Russellville facility are advancing well and will accelerate following independent confirmation of the capital costs for the facility.

In recent weeks there has been a large volume of shareholder enquiries to management, linked to the share price volatility. The business of treating aluminium waste is complex and technical and usually difficult to explain. The contract negotiations with our customers also have to be kept confidential and there are trade secrets important for us to preserve.

MHM must balance all these factors in trying its best to also be open and communicative with shareholders. Operating decisions often have to be made instantly for production to run smoothly and usually need to be given time to demonstrate that the process adjustment is optimal. Shareholders are assured that the company does everything in its power to maximize profits and minimize uncertainty.

A lot of management time is taken up with shareholder inquiries which effects efficiency in our day to day operations. We are seeking to remedy this in part by changing our website to be a more useful information resource for our shareholders and the investing public. New initiatives including publicizing some of the questions and answers will be part of the website within the next 2 months.

Again, we assure shareholders that profitable operations are our priority and the MHM management team is working extremely hard to deliver high performance. The Directors of MHM are grateful for the continued support of our long term shareholders and are hopeful that our monthly Progress Reports provide you and the broader market with sufficient information to encourage support and better understand our business.