US Navy picks Australian tech firm AML3D for key nuclear submarine role

AML3D components can be printed at a port or even on a maintenance ship. The submarine will be able to replace a part at sea.

It sounds like a story from Alice in Wonderland, but it has actually happened. A tiny listed Australian technology company at the end of 2022 had only enough cash to last six months.

One month later, the US navy chose the 3D printing technology of this cash-strapped Adelaide minnow, AML3D, for an important role in the development of the next stage of US nuclear submarine program. AML3D becomes the first Australian company to be awarded such a role and the decision will add an extra dimension to next month’s submarine talks between US President Joe Biden and Australian Prime Minister Anthony Albanese.

While there are still hurdles ahead, the US Navy submarine decision means that Australian 3D printing technology is set to become part of the massive revolution that is transforming US defence procurement, plus the entire American manufacturing base.

An essential part of the American strategy is the US “AM Forward” program to develop a significant manufacturing capacity in smaller and medium-sized enterprises. The fact that the enormous US defence machinery picked out the technology of a struggling Australian enterprise illustrates how the AUKUS deal ushers in a potential new era for the US and Australian manufacturing.

And it’s also a signal as to how US manufacturing is being transformed, which helps explain the latest US labour statistics and their interest rate implications — which I will detail in my next commentary.

The Australian company was chosen because nowhere else in the world could the US obtain specialised 3D printing technology where they could buy the actual printing plant systems and incorporate them into their supply chain — a key part of the future of manufacturing.

And, incredible as it might sound, although the initial purchase consideration is small at $1m, the US Navy broke from its normal payment pattern and paid a substantial percentage upfront deposit, realising that such action was required to enable the Australian company to be certain of being able to fund manufacture of the first plant. But the US deal is much bigger than a simple plant sale.

Accordingly, AML3D suspended trading on Friday to raise capital. AML3D must set up a US operation to undertake what will be the bigger part of the contract — servicing, updating software and maintenance — as additional AML3D plants are established.

In past eras US (and Australian) defence people simply would not deal with tiny local or overseas companies that were short of cash.

The fact that the enormous US defence machinery picked out the technology of a struggling Australian enterprise illustrates how the AUKUS deal ushers in a potential new era for the US and Australian manufacturing. Picture: AFP

But in the AUKUS era, Americans are looking for top technology and talents from secure sources rather than being confined to balance sheets. The US “AM Forward” program has facilities to provide capital for small US enterprises but there is no mention of Australian companies.

It has been a tough ride for AML3D. The company floated in 2020 with an issue at 20c a share and then followed that with another issue at 45c a share, raising a total of $16m.

The initial issues were helped by Adelaide establishment lawyer Stephen Gerlach agreeing to be chairman. He attracted a lot of Adelaide investors looking to take advantage of 2020’s overoptimistic market view that 3D technology would quickly sweep the world. Momentum is now building but has taken longer than expected and it’s been an unhappy time for AML3D shareholders. The company last year raised more capital at just 7c a share and the shares have been as low as 5c. On Thursday they still traded around 8c, with a capitalisation of just $16m. Given that the market may not have understood the potential of the deal I hope AML3D doesn’t simply raise capital with placements to the mates of the underwriter but also make a substantial entitlement offer to long-suffering shareholders.

The founder of AML3D, Andy Sales, started his work on 3D technology back in 2014 by studying the different properties of metals. He then applied that knowledge to appropriate 3D software. Most of the 3D technology companies started with 3D software rather than the properties of metals.

These days there are many other 3D technologies but AML3D’s so called “ARCEMY” system can produce, in normal factory conditions, very large metal component parts such as submarine propellers. The components can be printed at a port or even on a maintenance ship. The submarine will be able to replace a part at sea.

The initial “ARCEMY” installation will be located at the Oak Ridge National Laboratory in Tennessee, the largest science and energy laboratory in the US Department of Energy system and a key partner to the US Navy and other US global major clients.

Around the third quarter of 2023, after the systems are installed at Oak Ridge, the metal parts produced will be tested to confirm that they meet US defence specifications.

AML3D is supremely confident they will pass the tests because its systems have been subject to various international standards and have been used on a contract basis to make parts for both Chevron and Boeing.

The next step is the embrace of the technology through the US Navy and defence network.

Accordingly AML3D must convert from a pure technology company to substantial US operation. Andy Sales has stepped down as chief executive but continues as be in charge of technology development and retains about 20 per cent if the capital.

Ryan Millar is now CEO. The company’s initial strategy was to be a contract manufacturer using its 3D systems but AML3D will now sell the actual systems and develop an income stream from maintenance, servicing and system updates. It was that strategic change that helped give the Australian company an edge in the US defence marketplace.