should mhm change its business model in the us

Been thinking about this for a while particularly given the latest announcement and the hand off we are receiving in the states. Not surprising really when you look at it from the customers point of view.

Right now with respect to their waste they have a tried and tested solution – landfill. They know their costs – there is no uncertainty – and they also know that, yes, the legislative environment may be getting rougher but , hey, Tennessee just passed legislation to allow further landfilling in Mt Pleasant. So where is the urgency to change?

Against this backdrop along comes this little pissant of a coy from Australia (or is that Austria?) with yet another supposed solution to their waste ‘problem’. How many of these snake oil salesmen have there been over the years? By golly they keep on comin!

To overcome this cynicism what are we offering them?
We want them to pay us a toll to treat their waste. This toll is quite obviously much higher than their landfill cost. To reduce the cost of the toll we say they can have the aluminium that is extracted plus other flux which they can then sell and the net position is the same as or lower than their landfill cost.

The problem with this is they carry the risk as to the amount of aluminium/flux that can be extracted plus they carry the pricing risk as to what they can sell the aluminium for.

We are effectively saying that they carry our technology risk (which is unproven in their eyes as we do not have a plant in the US) plus they carry commodity price risk.

We can get away with this model at home because landfilling is prohibited, so that competitor does not exist, but in the US landfilling is our big competitor and we need to combat it.

To be successful and to start signing these people up we may need to show faith in our technology such that we take the risk with respect to recovery rates plus take on the commodity price risk.

This means we sell to them at their current landfill cost – they are then no worse off – and we retain aluminium and other materials recovered which we then sell at prevailing market prices.

This does increase our business risk profile (profitability will be more volatile) but we are the new boys on the block and to be successful it may require us to bite the bullet and take on this additional risk.

The other downside to this model is that it will probably not be 100% project financible so shareholders will have to stump up to provide whatever additional equity is required to fill the funding gap. From my personal point of view this is a small price to pay and so long as they do a rights issue I’d be more than happy to kick the can. It may mean Frank & Co get diluted but it’s better to have a smaller slice of a big cake than sit where we are beating our heads against a wall.

If I were a recycler I know which model I would prefer.

What do you guys think?