A Quick Look At The Sims Metal’s Investor Strategy

A Quick Look At The Sims Metal’s Investor Strategy

Sims Metal Management Limited (ASX: SGM) published another Investor Strategy Day presentation on 9th April 2019.

The presentation released on 8 April highlighted business portfolio of the company which includes metal recycling along with many other businesses such as waste-to-energy, Municipal Recycling, e-recycling, etc.

In another presentation released today, the company emphasized on the global demand of recycled metals and metal products. As per the company, the global demand for recycled copper is forecasted to grow amid the development of power grids and electric vehicles. The company also mentioned that the primary copper smelters are considering more recycled copper in their processes. In 2018, 1.3 million tonnes to 2.8 million tonnes of global secondary copper smelter capacity was situated in China.

Sims Metal observes that the dismantling capacity outside of China is increasing both at the source and in Asia. The company also noted that remelt capacity outside of China is expanding with many companies building contingency plans to establish plants in Asia if Category 6 (classification of scrap, based upon its physical properties) quotas are reduced.

On the demand side, the company mentioned that more than 12 million tonnes of additional supply of copper ore would be required by 2035, as the segment remains under-invested. As per the company’s estimation, it can take approximately 10 years for a copper ore mine to produce the required amount. The company also estimated that the copper requirements for electric battery’s anode would be around 80 kgs in electric vehicle and around 300 kgs in an electric bus.

SGM also presented the global scenario of recycled aluminium. As per the company, it is forecasted to grow in next 5 to 10 years driven by auto, packaging, and construction, as these three sectors consume large volumes of recycled aluminium.

China policy and Sims’ stance:

As primary smelters operate in China, the company is looking towards the Chinese region for business. However, Sims also have options, which could potentially serve as a plan if China reduces Category 6 imports.

The market option includes the less cost of building Re-melt facilities, and as per the company they are already being built in Asia. Ye Chiu, a Chinese company is doubling its capacity in Malaysia and Daiki, a Japanese company is building a facility in India. Also, as per the company, many copper semis producers have identified, where they would re-melt recycled metal. The market options for the company revolves around the processing of recycled metals in alternative markets before reaching China.

The company holds an advantage of sales diversification as the business is diversified into a different geographic location and customer type. Apart from the sales diversification, the company also has product diversification with the conversion of China import Category 7 copper into furnace ready category 6 copper. 

Financial and Operational Update:

The company holds 50 facilities across Australia, New Zealand, and Papua New Guinea.  It is the largest metal recycler in Southern Hemisphere. The company generated revenue of $1.1 billion in FY18 with $126 million noted in EBITDA.

The Return on Capital (ROC) was at 9.2% in FY16, and the ROC climbed to 15.75 in FY18.

Key Asset:

Zorba Separation Plant is one of the key assets for the company, and it is a solution to upgrade all Australian Zurik and Zorba to furnace-ready products. The National facility will be operational in April 2019. The Zorba separation plant will produce the products, which will be on sales for smelting directly and the plant can process new materials as well.

The stock of the company is currently trading at A$10.990  (as on 9th April 2019, 03:25 PM), down by 3.68%.


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