Altech Chemicals (ASX:ATC) has taken a step closer to clinching the support of an export credit insurance scheme which could cover most of the total capital cost of the company’s high-purity alumina (HPA) project.
Altech has received a letter of interest from the administrator of Germany’s export credit agency (ECA) confirming that the group would, in principle, support the project, which encompasses kaolin mining in Western Australia and a proposed HPA processing plant in Malaysia.
ECA debt is expected to cover about US$40 million of the project’s total capital expenditure of about US$77 million.
After including an expected additional senior debt requirement of about US$15 million, total project debt financing would be around US$55 million.
Interest rates charged by lenders on debt that is supported by ECA cover is typically at attractive conditions, as the repayment of the debt is insured, also long tenure is usually available in accordance with Organisation of Economic Cooperation and Development guidelines.
Headway in establishing ECA cover for the HPA project follows closely on execution of a mandate with Germany’s KfW IPEX-Bank, an export and project finance specialist with experience in the debt financing of worldwide mining and chemical projects.
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.
The next step in securing ECA cover is the submission of a formal application accompanied by a detailed project information memorandum and various supporting documents.
Detailed project due diligence will follow and will be coordinated by the Altech’s mandated bank and its Germany-based project financing consultants.
Project progress
The recent advances in obtaining German government export guarantees have coincided with other practical progress in realising and optimising the HPA project.
Most recently, this momentum has included an expansion of the kaolin mining operations in WA with the grant of a new exploration licence.
The licence covers an area of approximately 480 square kilometres, is on freehold agricultural land and contains an inferred kaolin resource of 85 million tonnes at 85.1% brightness.
The area known as the Kerrigan project is proximal to the Hyden to Lake Grace railway line which connects to the port city of Albany.
Also, Altech has planned further value-adding cost reductions for the project by relocating the project’s beneficiation plant adjacent to the HPA plant in Malaysia, reducing capital costs associated with feedstock transport and creating process circuit synergies.
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.
Altech also positioned itself to take in up to A$3 million in cash plus royalties by granting mining rights in October for its kaolin operations in WA.
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.
Bankable Feasibility Study results for Altech’s HPA 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%.
Analysis
This signal that ECA cover will be available for Altech’s HPA project is a significant financing milestone, especially since only selected projects pass the very important initial assessment and cover is awarded to the vast majority of the projects that succeed at the initial evaluation.
The fact that a positive initial evaluation was delivered so quickly after Altech established a mandate with its German financing consultant KfW reflects well on industry impressions of the HPA project as a business model.
The update follows encouragingly on concerted efforts to optimise the HPA project, including improvements to the processing circuit plan, a mining rights deal and a move to expand the kaolin mining operations.
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.
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