Altech Chemicals (ASX:ATC) has planned further value-adding cost reductions for its quickly developing HPA high-purity alumina project by optimising the beneficiation circuit.
Altech’s HPA operation encompasses kaolin mining properties in Western Australia and a proposed processing plant in Malaysia with a throughout capacity of 4,000 tonnes per annum.
An initial plan including a beneficiation plant at the WA mining site, however, has been improved by relocating beneficiation duties to the Malaysian side of the operation.
This change is expected to reduce the capital cost of the project by eliminating the need for infrastructure related to the drying and bagging of kaolin feedstock before transport.
Instead, raw, un-beneficiated kaolin will be delivered from WA by sea containers to Malaysia, where a smaller plant running at a lower operating cost will benefit from cheaper power costs and maintenance synergies associated with the adjacent HPA process plant.
The new Malaysia-based beneficiation plant would also operate 24 hours a day, as opposed to the original model of a 12-hour-per-day plant in WA.
The estimated lower operating costs for the Malaysian beneficiation plant will more than offset the additional freight associated with transporting un-beneficiated kaolin from WA to Malaysia.
Shipping is now expected to run at a rate of about 40,000 tonnes per annum of un-beneficiated kaolin instead of the previously estimated 18,500 tonnes per annum of beneficiated kaolin.
There will be an additional oversize quartz stream as a consequence of the beneficiation of kaolin in Malaysia, but the quartz will be sold as an aggregate by-product.
This optimisation is the result of an ongoing detailed study of flow design, plan layout, capital equipment and operating costs.
Adding value
The newly optimising operating model for the HPA project represents a continuation of value-adding advancements in recent weeks.
Last month, Altech set the project up to improve its financial footing by as much as A$3 million in cash and royalties thanks to a mining rights deal at the kaolin pits in WA.
The company granted Dana Shipping and Trading an exclusive right for up to 10 million tonnes of kaolin at the Meckering deposit in an arrangement that included a $1 million cash payment and an option to increase the mining right to 30 million tonnes by paying an additional $2 million.
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.
Bankable Feasibility Study results for the project have contemplated a net present value of US$326.1 million, a capital cost of US$76.9 million and a payback period of only 3.8 years.
Project EBITDA was initially calculated to total US$59.4 million per annum with global HPA demand growing at an annual rate of 28%.
Financial progress
Altech’s HPA development has also marked financial momentum in the form of interest from a leading German export and project finance specialist with experience in the debt financing of worldwide mining and chemical projects.
A statement from the bank has contemplated financing that will maximise the use of export credit insurance cover under the German federal government backed project finance federal export guarantees.
The German Export Credit Agency (which guarantees foreign trade) was identified as applicable to Altech’s HPA project because the majority of the plant and equipment will be sourced from European Union manufacturers and because German group M+W is the appointed engineering, procurement and construction contractor.
This traction in securing additional funds for the HPA project follows the completion of A$1 million placement last month with a cornerstone Asian investor.
The investment by diversified Malaysian industrial firm Melewar International investment Company represents the majority of a $1.13 million fundraiser announced by Altech in August aimed at progressing a detailed design phase of the project.
Analysis
Although this beneficiation simplification is likely to have only a minimal impact on the HPA project’s net present value, the streamlined flowsheet and the synergies related to having all major processing infrastructure at one site are an important financing advantage.
Identification of this optimisation reflects well on the competence of Altech and its consulting partners – and suggests that further optimisations and cost savings are possible as the project reaches more advanced development milestones.
This potential is supported by the ongoing nature of the detailed design and optimisation work, which will continue into the first quarter of 2016 in parallel with project financing and associated activities.
This could offer additional price catalysts for Altech stock, which was last trading at A$0.097, more than double its value at the midpoint of the year.
The value that the latest optimisation adds to the HPA project compounds recent operational improvements, such as last month’s scalable mining rights deal.
Investor interest has also been evident in an approach from an esteemed German bank, a placement with a cornerstone Asian investor and a landmark Mitsubishi sales agreement.
The Mitsubishi connection is particularly relevant as it opens the door to business in Japan, country which comprises 21% of the global HPA market.
With high-purity alumina forecast to be part of the next “new age materials boom” like rare earths, lithium and graphene, Altech’s recent investment interest may prove prescient.
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