Altech Chemicals (ASX:ATC) has completed a placement for A$1 million in proceeds with a cornerstone Asian investor as high-purity alumina (HPA) operations develop.
The company has received the second tranche of an investment by diversified Malaysian industrial firm Melewar International investment Company Limited, with the completion of a placement of about 17 million Altech shares.
Altech has invited Melewar to nominate a Malaysia-based non-executive director to the company board.
The $1 million investment represents the majority of a $1.13 million fundraiser announced by Altech in August aimed at progressing a detailed design phase of the company’s HPA project.
This operation encompasses mining properties 130 kilometres from Fremantle port in Western Australia and a proposed HPA plant in Malaysia with a throughout capacity of 4,000 tonnes per annum.
HPA is a high-value, high-margin and highly demanded product as it is the critical ingredient required for the production of sapphire substrates which are used in the manufacture of LED lights as well as the manufacture of alumina semiconductor wafers and the scratch-resistant artificial sapphire glass used by various smartphone manufacturers.
There is no substitute for HPA in the manufacture of sapphire substrates, sapphire semiconductor wafers or scratchproof sapphire glass.
Development progress
Recent milestones in strengthening Altech’s HPA business have included the signing of an agreement appointing Mitsubishi Corporation (TYO:8058) as the exclusive seller and distributor of the product to the Japanese market.
Mitsubishi is Japan's largest general trading company with a market cap of 3.38 trillion yen (A$39 billion) and more than 200 bases of operations in about 90 countries worldwide. The agreement with Mitsubishi provides the required marketing and distribution experience for its HPA in this market.
Japan accounted for 21% of global HPA demand in 2014, making it an important market for the company.
Earlier in the year, Altech completed a Bankable Feasibility Study that highlighted the potential of its HPA project to deliver high margins, strong cash flows, and rapid payback period.
Key metrics from the BFS included:
- Capital cost estimate US$76.9 million (A$98.6million);
- Payback period 3.8 years;
- Estimated pre-tax NPV of US$326.1 million (A$362.4 million) (at 10% discount);
- IRR of 30.3%;
- Long-term sale price forecast of US$23,000/tonne (A$25,560/tonne) for 99.99% (4N) product;
- Cost of goods sold US$8,140/tonne (A$9,050/tonne); and
- EBITDA of US$59.4 million (A$66.0 million) per annum.
Financing plans for this operation have included discussion with Asian banks and a target of about A$55 million in debt as well as structured project fiancé options and Europe-based bonds.
The company has already begun permitting for its proposed aluminous clay (kaolin) mining operation and beneficiation plant. Permitting for both mining and beneficiation is relatively straightforward.
HPA markets
HPA is expected to be part of the next boom in high-tech materials such as rare earths, lithium and graphene.
Global HPA demand is about 19,040 tonnes per annum (2014) and demand is growing at an annual rate of 28%, primarily driven by the growth in LEDs, as this energy efficient, longer lasting and lower-cost form of lighting replaces traditional incandescent bulbs.
HPA demand is expected to at least double over the coming decade.
A total of 70% of HPA demand is forecast to come from the Asia Pacific region, and where Altech’s HPA plant in Malaysia is well positioned to service the region.
Potential for Altech to attract customers in this trend is supported by its sales partnership with Mitsubishi in Japan, a country which comprises 21% of the global HPA market.
Current HPA producers use an expensive and highly processed feedstock material such as aluminium metal to produce HPA.
Altech’s production process, however, will employ conventional “off-the-shelf” plant and equipment to extract HPA using a hydrochloric acid (HCl) leaching process.
Production costs are therefore anticipated to be considerably lower than established HPA producers.
Analysis
Completion of the Melewar both provides cash for ongoing HPA development and helps cement Altech’s business connections in the Asia-Pacific region, which represents 70% of global HPA business.
Altech's HPA project in WA and Malaysia, meanwhile, provides a real alternative to dominant Chinese and Japanese producers.
The Malaysian plant is well positioned to service Asian markets and benefits from operating costs that are 40% lower than in Australia. Capital costs are expected to be 50-60% lower.
The US$326 million NPV of the HPA project represents about four times the value of the capital cost estimate ($77 million). Financing of this cost is well in hand, with the latest share placement and offtake arrangements, plus ongoing negotiations with various international institutions.
Growth in the HPA market is tied to well established trends in technology, including the proliferation of touch screen phones in emerging Asian economies.
With HPA forecast to be part of the next “new age materials boom” like rare earths, lithium and graphene, the Melewar investment and sales partnership with Mitsubishi may prove prescient.
Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China