Prior to the incorporation of MHM, two of the Company's Directors (Frank Rogers and Peter Robertson, the Technology Providers) developed the proprietary ALNAK technology that provides a "closed-loop" solution to the Salt Slag waste issue. Alreco has now acquired exclusive global rights to this technology from the Technology Providers, subject to the payment of a 5% gross revenue royalty for any international operations. No royalty is payable for Australian operations.
CONTRACT TO PROCESS ALCOA'S SALT SLAG AND ALCOA'S MOOLAP SALT SLAG LANDFILL
The ALNAK technology and associated business has been under development since 1998, independently of MHM by a Joint Venture of three companies (the Three Party JV), including two companies associated with Frank Rogers and Peter Robertson who are both also Directors of MHM. In early 2009, the Independent Directors of MHM identified the Salt Slag business as a potential fit for the Company and appointed Grant Thornton (Corporate Advisers) and The Carnot Group (Technical Advisers) to assist with the due diligence and negotiation for acquisition of the business. The negotiation with Sims also occurred concurrently, though this aspect of the transaction was not associated with the interests of the Three Party JV.
The Three Party JV owned the rights to the ALNAK technology within Australia, and agreed to sub-licence the exclusive Australian rights to Alreco. The exclusive global rights to the technology were also acquired by Alreco at this time. The Three Party JV is contracted with Alcoa to reprocess the Salt Slag landfill owned by Alcoa containing 160,000 tonnes of aluminium waste, including the rights to ownership of 100% of the proceeds of materials recoverable from the landfill.
In addition, the Three Party JV has contracted a three-year tolling agreement with Alcoa for the processing of Aluminium Salt Slag. The contract provides for between 33,000 and 39,000 tonnes of salt slag to be processed over a three year period. Alcoa is to pay $300 per tonne of material processed, and retains ownership of the recovered aluminium metal and salt / potassium chloride blend.
The Three Party JV and Alreco have executed a processing and sales agency agreement under which, in return for a fee, Alreco will process the Aluminium Salt Slag recovered from the Alcoa landfill and sell the resulting products as agent for the Three Party JV. Alreco will also perform the Three Party JV's obligations under a tolling contract with Alcoa, as a sub-contractor. Alreco will receive 60% of the EBIT profits for performing these services for the Three Party JV, and has the first right of refusal to acquire 100% of the rights of the Three Party JV, subject to independent valuation and shareholder approval.
The Independent Directors of MHM are of the view that the negotiated structure between the Three Party JV and Alreco provides for the lowest risk transaction. The initial processing and sales agency and subsequent valuation by an Independent Expert permits the Independent Directors to be satisfied that the business is operating as anticipated prior affecting the acquisition of 100% of the Three Party JV rights, subject to shareholder approval.
It is the view of the Independent Directors that a more accurate valuation for the Three Party JV rights can be derived in this manner. On 18 January 2010, Alreco commenced processing Alcoa's Salt Slag from ongoing production in accordance with the contract between the Three Party JV and Alcoa. The Alcoa Salt Slag landfill will not commence reprocessing until the ALNAK technology upgrade is complete, in order to avoid partly-processed Salt Slag storage issues.
CONTRACT TO PROCESS SIM'S SALT SLAG, NON-SALT SLAG AND ALUMINIUM DROSS
Alreco has entered into a processing agreement with Sims Aluminium Pty Ltd that commenced on 15 January 2010. The agreement provides for the processing of material by Alreco including Aluminium Salt Slag, Aluminium Non-Salt Slag and Aluminium Dross.
The processing is for an initial period of 12 months, though the parties anticipate that the relationship will continue beyond this term. At the request of Sims, the specific details of the processing agreement are to remain Commercial-in-Confidence.
This contract is 100%-owned by Alreco and there is no profit sharing arrangement with the Three Party JV. Alreco commenced processing under this contract on 18 Jan 2010.
CONTRACT FOR THE FIRST RIGHT OF REFUSAL TO SPENT POT LINING AND NON-METALLIC PRODUCT TECHNOLOGIES
MHM has entered into a contract with the Technology Providers that secures the first right of refusal for the exclusive rights to two additional technologies that are under development. These technologies relate to the treatment of Spent Pot Lining, an additional toxic waste stream from the aluminium industry, and a value-adding technology for Non-Metallic Product, an industry by-product and residue of the ALNAK technology.
MHM Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
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