Altech Chemicals (ASX:ATC) has positioned itself to access up to US$40 million in German government-backed export guarantees with a mandate for project financing from a leading German bank.
The mandate with KfW IPEX-Bank – an export and project finance specialist with experience in the debt financing of worldwide mining and chemical projects – provides advisory and structuring services in relation to the provision of senior debt project financing for the company’s proposed high purity alumina (HPA) project.
Altech’s HPA operation encompasses kaolin mining properties 130 kilometres from Fremantle port in Western Australia and a proposed processing plant in Malaysia with a throughout capacity of 4,000 tonnes per annum.
HPA is a high-value, high-margin product required in growing technology sectors and is expected to experience a doubling in global demand over the coming decade.
The project’s new senior debt agreement with KfW sets up potential for Altech to access about US$40 million of insured debt via the German Export Credit Agency (ECA), which guarantees foreign trade.
This coverage is considered possible 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.
Encouragingly, the interest rate charged by lenders on the portion of total project debt that qualifies for ECA cover is available under attractive conditions with long tenor in accordance with OECD guidelines.
Interest charged on any senior debt and/or mezzanine debt over and above the ECA cover portion of debt is normally at standard commercial rates.
Forward momentum
The first step in the ECA cover approvals process is for Altech, KfW and M+W to make a presentation to the agency administrator for its assessment of the project.
This will allow an initial determination of eligibility to be made for ECA funding.
ECA cover and subsequent senior debt project financing is subject to a detailed due diligence process, which will assess the HPA project after a string of development advancements expected to add value to the operation.
These advancements include a kaolin mining rights deal with potential to earn Altech up to A$3 million in cash and royalties, a $1 million investment from Malaysian firm Melewar International Investment Company and a sales partnership with Mitsubishi Corporation (TYO:8058).
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.
As such, it provides Altech with an excellent opportunity to access the Japanese HPA sector which comprises 21% of the global market.
About HPA
HPA 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.
Analysis
The signing of the mandate with KfW for senior project debt financing is a significant step in Altech’s HPA financing efforts, especially since it includes in-country support toward pursuing ECA cover.
The strong potential to access ECA cover is a major plus for Altech, considering the attractive interest terms and the fact that it could be applied to US$40 million in project debt.
Rollout of the KfW mandate – including the due diligence process associated with final grant of ECA cover – could deliver strong price catalysts for Altech stock, which has been trending positively since the mid-year point on HPA project development progress
Altech shares were last trading at more than double their value six months ago at A$0.095.
Positive feedback from the ECA due diligence process would represent a strong endorsement of the HPA project and could spark further interest in Altech stock.
Operationally, the HPA project benefits from a number of advantages that bode well for this upcoming assessment, including a projected payback period of only 3.8 years and EBITDA totalling US$59.4 million per annum.
Current HPA producers use expensive and highly-processed feedstock material such as aluminium metal to produce HPA, but Altech’s production process will use a conventional “off-the-shelf” plant and equipment to extract HPA using a hydrochloric acid leaching process.
This model has helped hone Bankable Feasibility Study economic results for the project, including a net present value of US$326.1 million and a capital cost of US$76.9 million.
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