For Discussion Purposes Only. Direct Metals Recycling Financing Opportunity. (Note: All figures contained herein are in US dollars)

Transcription

1 For Discussion Purposes Only Direct Metals Recycling Financing Opportunity (Note: All figures contained herein are in US dollars) June 2015

2 Cautionary Statement This Confidential Information Memorandum ( CIM ) does not constitute an offer or a solicitation of an offer in respect of any securities or assets described in this Overview. The information in this Overview is provided solely for discussion and evaluation purposes. The information provided is subject to change without notice. The information may contain statements which are either missing information or which assume the future completion of certain matters. Accordingly, this Overview does not purport to be all-inclusive or to contain all the information that may be required in relation to such discussions or for an evaluation of any proposal. This CIM shall not form the basis of any contract or commitment. This CIM does not constitute investment, legal, tax or other advice, and does not take into consideration the investment objectives, financial situation or particular needs of any particular investor. This CIM is conveyed to institutional counterparties based on our belief that each institutional counterparty can independently evaluate and judge investment risks. Although all reasonable care has been taken to ensure that the information given in this CIM is accurate, it has not been independently verified. Accordingly, no representation or warranty, expressed or implied, is made in relation to the accuracy or completeness of the information and opinions expressed in this CIM and, to the maximum extent permitted by law, any and all liability in respect of such information and opinions is hereby expressly excluded, including, without limitation, any liability arising from fault or negligence, for any loss arising from the use of this information or otherwise arising in connection with it. No responsibility is accepted by the Company described herein, or any affiliate of the Company or any of their respective directors, representatives, officers, employees, agents, advisors, associates nor any other person, for any of the information or for any action taken by you on the basis of the information or opinions expressed in this CIM. Bassett Financial Inc. ( Bassett ) makes no representation or warranty, expressed or implied, as to the accuracy or completeness of the information contained in this CIM, and nothing contained herein is, or shall be relied upon as, a promise or representation, whether as to the past or the future. This CIM does not purport to contain all of the information that may be required to evaluate any proposed transaction. Bassett has not independently verified any of such information and assumes no responsibility for its accuracy or completeness. This material is not for external distribution. Forward Looking Statements This CIM contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or developments in the Company's business or in their respective industries, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements include all disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. The Company cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. Forward-looking statements relate to, among other things: contemplated sale of the Company; client contracts; cash flows and operating income. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and other than as required by applicable securities laws, the Company does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change. Page 1

3 CONFIDENTIAL INFORMATION MEMORANDUM Direct Metals Recycling (NOTE: All figures contained herein are in U.S. dollars unless otherwise noted) Investment Highlights Vertically integrated PGM recycling Company to expand revenues Direct Metals Recycling. ( DMR or the Company ) is excelling in the procurement of Platinum Grade Metals (PGM) through the processing of catalytic converters. The company has a strong track record in ferrous, non-ferrous and catalytic recovery, through pricing transparency resulting in a level of customer loyalty uncommon in the industry. DMR has off take agreements with a top auto manufacturers to buy 100% of output. The company s model essentially allows it to procure valuable catalytic converters at zero cost to DMR. Business Model Low fixed investment and quickly moving inventory leads to high returns on an invested capital basis. Working capital agreement in place with top 5 auto maker. 100% of non-ferrous business similarly hedged. All WIP in cash or in physical metal, no capital risk. DMR growing from a regional aggregator to a national aggregator. Margin consistency significantly reduces exposure to commodity prices Historical correlation between PGMs and catalytic converter prices ensures margin consistency. Significant feedstock supply and off-take arrangements ensure maximum plant capacity utilization The Company procures ~100,000 catalytic converters per year and has access to multiple feedstock sources to quickly scale to minimum 500,000 over 18 months and 1 million in Off-take agreements provides 85% of working capital for total output. No incremental building or other fixed costs. Forecasted strong and stable EBITDA with unique opportunity for debt investment with 90% of WC provided Working capital facility opportunity. Equity and term debt facility opportunity. Page 2

4 Vertically Integrated Recycling Company with Potential to Expand Revenues Industry Overview Purchasing Recovery Refining Recycling Used catalytic converters are purchased through scrapyards, auto parts dealers, or individual aggregators/retailers. The catalytic converters are decanned, assayed for PGM content & shipped to a smelter. The catalytic converters are smelted to liberate contained PGMs. Remaining byproducts (ferrous and non-ferrous metals) are sold to other buyers. PGM metals are refined to produce a pure form of the recovered metals. Recovered metals are sold into the spot market or by way of an off-take agreement. Recovered PGMs are often used to create new catalytic converters, other industrial or retail products. The North American metals recovery industry is highly fragmented, DMR integrates the buying and selling process. Typically, local buyers of catalytic converters purchase them from auto parts dealers, OEM auto recyclers, OEM warranty replacement, scrapyards or regional aggregators/retailers. The procurement business has become increasingly complex requiring a higher level of sophisticated and experienced operators. Few operations have DMR CEO s background and industry partnerships. Pricing competition has fueled innovation, purchasers have developed methods of assaying the specific metals content inside each catalytic converter in order to capture higher margins (catalytic converters are sold on a per unit basis not on a contained metal basis). New onsite laboratory XRF systems can verify PGM levels minimizing margin fluctuations and permitting a higher net to customers to gain long term commitments. Catalytic Converters A catalytic converter is an emissions control device integrated into the exhaust system of domestic automobiles, trucks and industrial vehicles. They contain a honeycomb like structure that is made of ceramic which includes amounts of platinum, palladium and rhodium. Catalytic converters are used in all major automotive markets around the world in order comply with emissions standards. Certain US states have implemented legislation making it illegal to sell a used catalytic converter with the exception of selling them to recycling companies creating a captive market. Page 3

5 Vertically Integrated Recycling Company with Potential to Expand Revenues Cont`d Company Overview DMR is an Atlanta, Georgia based company founded in 2005, excelling in the procurement of Platinum Grade Metals (PGM) through the processing of catalytic converters. DMR s management team has extensive experience in metals recovery and will form part of the pro forma management team. Chief Executive Officer Dan Sterling is an MBA graduate from the Wharton School of the University of Pennsylvania and has 20 years of experience as an entrepreneur and with Fortune 500 companies Accenture and NCR. Mr. Sterling operates at the highest caliber of management sophistication demanded in such a high cash flowing organization. Direct Metals Recycling has grown to be a leader in recycling catalytic converters and scrap steel in an environmentally safe manner, selling these commodities to domestic and international markets. Potential to Expand Revenues A profitable leader in the North American PGM market, with revenue of over 15 million dollars in The acquisition will propel growth into fiscal with projected revenues of 55 million dollars and EBITDA of over 2.5 million dollars. The Company has a term sheet from one of the top 5 auto manufacturers in North America to finance the working capital required to buy catalytic converters, contingent on the Company selling the PGM s to them at their trading desk s bid price. Company procures Catalytic Converters with only 10% cash outlay. (1) Source: DMR Financials 30% of global PGM dependent on the recycling industry The leading demand sector for PGMs continues to be catalysts to decrease harmful emissions in both light and heavy-duty vehicles. China currently mandating catalytic converter use. PGMs are also used in a variety of other sectors: Trends increasing vehicle production worldwide but especially in Asia will lead to more stringent emission standards for diesel vehicles, particularly in the commercial sector, China, India and South America. In addition, due to South Africa s large percentage (80%) of world PGM supply, the countries mining policies & other events supply shortages are critical to industry in addition to electric and hybrid automobiles requiring ounces, not tenths of ounces of platinum. Page 4

6 Selective Sourcing Support Throughput Optimization DMR has identified a pipeline of suppliers to fill their ~2 million catalytic converters capacity 2,000,000 DMR Supply Pipeline 1,500,000 1,000, ,000 0 Off-Take Agreements Support Massive Throughput Select Identified Catalytic Converter Feedstock Sources (1) DMR Main Facility Atlanta, GA Over 200,000 per year (2) Over 100,000 per year (3) (1) Map includes secured feedstock and advanced discussion phase feedstock partners, Portex currently has 150,000 yearly catalytic converters secured through the DMR Facilities Page 5

7 Demand DMR has an open purchase order from Honda Trading America ( HTA ) which is a supply chain management division of the global automotive company, to purchase all the PGM that DMR can acquire Contractual terms of payment are 85% of estimated PGM content based upon the prevailing commodity spot price, with payment via wire transfer upon DMR s submission of a detailed packing slip. It is important to note that Dan can initiate the wire transfer himself directly from HTA s account. The shipment of CATs are then directed to HTA s preferred smelter, and then the balance of the purchase price will then be wired to DMR. HTA confirmed they could easily manage 50,000 CATs per month, which at an average street purchase price of $80.00 equates to $4M of inventory purchases every month, $48M of COGS annually, and at an assumed GPM of 15% = $56.5M annual revenue Vertical Integration DMR has several value added services in can internalize as cash flow and financing permits once the RTO is completed, which include the following: Decanning: The benefits to internalizing this process would be efficiency and maintaining control over the product. Cost: $75K Lab: The benefit of internalizing this process would be a larger database in a shorter period of time. Cost: $250K Smelting: Internalizing smelting would allow DMR to maintain even further control over their product, capturing inherent gross margin for every CAT purchased in the process. Cost: $10M Financial Information Project Cash Flow Profile (1)(2) Page 6

8 Contact Information Matthew Basset President and CEO Phone: Andrew Stoner Executive Assistant Phone: Bassett Financial Inc. 199 Bay Street, Suite 2901 Commerce Court West Toronto, ON M5L 1G1 Phone: Page 7