Altech Chemicals (ASX:ATC) shares were trading as much as 15.8% higher today after the company finalised mining rights which could earn the company up to A$3 million in cash plus royalties.
Altech shares were last trading 10.5% higher at A$0.105, marking a 61% gain over the past three months.
The support comes as the company grants Dana Shipping and Trading an exclusive right for up to 10 million tonnes of kaolin at the Meckering deposit in Western Australia which – along with a proposed plant in Malaysia – represents the company’s flagship project to produce high-purity alumina (HPA).
This arrangement includes a $1 million cash payment to Altech.
However, Dana has an option to increase its kaolin mining right to 30 million tonnes by paying an additional $2 million, and Altech will receive a 2% gross sales royalty on all bulk kaolin sales.
Only 130 kilometres from Fremantle port, Meckering contains 65 million tonnes of kaolin resources expected to provide an abundant, low-cost aluminous clay feedstock for an estimated +100 years mine life.
Altech’s HPA project, however, only requires 4 million tonnes of kaolin for a 100-year project life.
The new rights arrangement will not constrain Altech’s HPA project as Altech’s right to mine kaolin takes priority over the mining rights granted to Dana and reciprocal non-compete obligations apply to both Dana and Altech.
The bulk kaolin that Dana intends to produce from its mining operations will be predominantly used in the ceramics, paper, rubber and paint industries.
Cornerstone Asian investor
The Dana deal follows quickly on a placement for $1 million in proceeds with Malaysian industrial firm Melewar International investment Company.
The investment represents the majority of a $1.13 million fundraiser announced by Altech in August aimed at progressing a detailed design phase of the HPA project.
Altech has invited Melewar to nominate a Malaysia-based non-executive director to the company board.
Completion of the Melewar investment 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.
Mitsubishi sales deal
Last month, Altech also signed a milestone agreement appointing Mitsubishi Corporation (TYO:8058) as the exclusive seller and distributor of its final HPA product to the Japanese market.
Mitsubishi is Japan's largest general trading company with a market cap of 3.38 trillion yen (A$39.4 billion) and more than 200 bases of operations in about 90 countries worldwide.
It has been engaged in long-term business with customers from around the world in virtually every industry, including energy, metals, machinery, chemicals, food and general merchandise.
About HPA
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.
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.
Analysis
Delivery of a mining right to Dana at Meckering secures additional value to Altech shareholders as it provides a cash injection and ongoing royalty from a resource that has potential beyond its planned use as a HPA project feed.
If Dana exercises its option to increase its mining rights to 30 million tonnes, Altech will benefit from a total payment of $3 million without dilution to current shareholders.
The recently completed Scoping Study for Meckering mining, processing and associated testwork has delivered promising results which confirm the potential for the project to provide bulk kaolin for export markets.
Meanwhile, the proposed Malaysian process plant is well positioned to service Asian markets and benefits from operating costs that are 40% lower than in Australia. Its capital costs are likewise expected to be 50-60% lower.
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.
Potential for Altech to attract customers in this booming HPA market is particularly well supported by its new sales partnership in Japan, a country which comprises 21% of the global HPA market.
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