research & resulting questions, page-15

Hi Firsova,

I have run some DCF calculations (very conservative).

For the Australian operations I have assumed:

1. We process the landfill for 5 yrs
2. The Alcoa and Sims contracts (total of 25,000 tpa) are renewed into perpetunity
3. After the landfill ends (5 yrs time) the plant is limited to processing 25,000 tpa (Alcoa and Sims).
4. Discount rate of 20% (yes it is higher than most, but im being very conservative).

This would value the Australian operations at $36 million. Reducing the discount rate to 15% increases this to $45m.

For the American operations I have agained been conservative. I have assumed:

1. We will process 200,000 tpa (the guidance provided by MHM was between 200-250,000 tpa).
2. Same margins as the aust business.
3. An increase in corporate costs.
4. No growth after signing the inital contract.

Using a 20% discount rate this would value the American operations at $103m, 15% would value it at $165m.

So our current market cap is $120m.
Less Aust operations at $40.5 m (half way between my 15 and 20% DCF figure)
Less value of Silica and Exploration at $20m (halfway between my figure and yours).
That leaves $59.5 for the American operations/International Expansion.

So you could say that based on 200,000 tpa deal the market is factoring this in by 50-60% (using 20% DCF figure) or 36% on the 15% DCF valuation.

Interestingly if we take the high figure of 250,000 tpa then the value of the American operations increases to $148m at 20% or $229m at 15%. Indiciating the market is pricing this agreement in by 25 - 40%.

My final notes:

Obviously most holders are expecting MHM to process more than 200,000 tpa in America/Europe/Rest of the World. I think the above calcs highlight that even at a very conservative level with no growth beyond an inital 200,000 tpa agreement there is upside in MHM. For each investor the potential increase in SP will depend on the level of confidence you put on an American deal being signed (and what level of confidence you think the market is placing on it). If you believe the deal will happen then MHM should increase in value regardless of whether there is no further expansion (my opinion only).

*** Please do your own research, these figures are provided for discussion only and I do not guranatee there accuracy at all. As always consult a professional advisor if you plan on making any investment.