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Finding Gold In Garbage

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According to a 2007 ADOT report there are approximately 254.4 million vehicles in the United States. The cost of upkeep and fuel is astronomical, and a lot of people make a lot of money off of that massive fleet…Oil companies, automakers, part manufacturers and mechanics just to name a few.

But eventually that car is going to reach the end of its life. As you probably know, cars aren’t just carted off to some auto-cemetery to rust.

These days a car is a wealth of material resources. There’s loads of iron and steel in the car’s frame and components.

Radiators are also sought after for their high metal content. Newer vehicles have primarily aluminum radiators, and older cars could have copper or even brass radiators.

Batteries are broken down for their lead and plastic. Precious metals in catalytic converters are worth a small fortune. And even scrapped aluminum engine blocks are valuable.

In death automobiles are still creating industries.

The Automotive recycling industry is still fragmented. The top 20 companies control only 35% of the market.

It’s estimated there are over 500 independent metal recyclers in the U.S.

In 2010 the US recycled about 74 million tons of iron and steel alone, and we exported another 20 million tons of it as scrap. That’s a lot of metal. In fact the industry sells about $40 billion worth of materials annually.

One small cap company in particular has consolidated the whole chain. They have facilities to recycle almost every part of a car form metal frames, to batteries, radiators and catalytic converters.

And they’re conveniently located in the industrial heart of America.



Metalico (MEA) has three distinct business segments.

The largest segment is their ferrous and non-ferrous scrap metal recycling.

Ferrous metals are simply metals that contain iron, like steel. Non-ferrous means no iron, such as aluminum, copper and lead.

The company sells the ferrous metal as shredded, sheared and bundled scrap. The Non-ferrous is sold as aluminum, copper, stainless steel, brass and high temperature alloys.

Metalico’s second segment is platinum group and minor metal (PGM) recycling.

And their last segment is lead product fabrication. They manufacture sheet lead/plate, shot, strip lead, cast lead and some machined products.

The company is based in the north east part of the country. Their scrap processing facilities are in New York, Pennsylvania, Ohio and West Virginia. The company operates twenty other scrap metal facilities.

One of those has the added bonus of being an aluminum de-oxidizing plant as well.

Their Annaco facility in Ohio is one of the largest auto engine processors in the country. And Metalico’s Buffalo, New York processor is one of the largest in the Great Lakes region.

Metalico has six PGM processing facilities smattered elsewhere. There are facilities in New Jersey, Pennsylvania, Mississippi and Texas.

The company’s lead product manufacturing facilities are in Alabama, California, and Illinois.



There’s a lot of diversity in this company. So it’s important to look at how each of those segments is performing.

The ferrous and non-ferrous scrap metal is the largest segment.

In Q3 2011 ferrous sales were 135,800 tons and non-ferrous sales were 32.7 million pounds. But the selling price of non-ferrous was stronger in 2011. Overall, ferrous and non-ferrous segment sales increased year-over-year by 23%.

Metalico’s PGM segment is also up.

Platinum processing by weight was down slightly from 31,400 in Q3 2010 to 29,200 in 2011. But revenue increased by five million, or approximately 15.4%, on account of more favorable platinum prices. The minor metals part of that segment also increased, from $8.1 million to $12.6 million.

The Lead fabricating segment’s weight of sales increased only marginally. But because of improving lead prices, revenue from this segment increased, by 24.3%.



Metalico announced a third straight year of revenue increases with their most recent annual filings on March 14, 2012. The company reported revenue of $660.9 million, up 19.5% from 2010’s revenue of $553.3.

A 126.6% increase over 2009’s revenue of $291.7 million.

In 2009 the company reported a net loss of $3.4 million. Working hard, company management turned the business around, reporting net income of $13.4 million in 2010, and $17.4 million in 2011.

Earnings per share in 2011 were $0.37, up 27.6% year-over-year.

The company’s main hurdle is keeping operating expenses down. In 2010 they had an operating margin of 6.6%. In 2011 that dropped down to 5%.

At the end of 2010 the company reported $3.5 million cash. As of Metalico’s their March 10k filing the company had $5.9 million in cash. That’s an increase despite recent capital outlays.

Total assets for 2011 are up 11% from 2010. Liabilities only increased 7.3% during the same period. The company has long-term liabilities of $134.1million.



During the third quarter Metalico leased and received permits for a 75,000 square-foot property in New Jersey. The property will be used as a new non-ferrous buying center. It’s also going to be the headquarters for their New Jersey-based PGM recycler.

The company also added some key members to their team of non-ferrous buyers. According to management their success has already expanded that segment. The company has already added additional equipment to handle the growth. They are now planning an expansion of a warehouse to handle the increased volume.

Management also bought back $5 million of the company’s 7% convertible notes. They plan on retiring another $5 million of the notes before year’s end.

The company has also increased capital expenditures. They invested $7.6 million in the third quarter, primarily in the scrap metal segment.

They spent $3.3 million on a new shredder in Buffalo. Another million for a fleet of high capacity rail cars. And the rest was mostly spent on improving facilities for new trucks and scrap cranes.

The company’s future plans are to continue to invest in metal processing capabilities. Management is also on the lookout for attractive acquisitions.