The Sophisticated Investor Analysis on Altech Chemicals Ltd
Debt Financing Nears Completion for HPA Developer
Altech has simplified and streamlined the process to produce HPA with the use of kaolin as the feedstock, which will be sourced from the company's 100%-owned Meckering deposit located on the outskirts of Perth in Western Australia. After mining, the ore will be transported to the company's proposed HPA processing facility in Malaysia. The Bankable Feasibility Study (BFS) estimated the costs of production to be US$9,040 /t compare to the current reported HPA price in Japan of ~US$30,000/t.
HPA is a high-value and in-demand product, which is classified depending on its purity level. The major consumer of 4N (99.99% Al2O3) HPA is synthetic sapphire with future demand also being driven by lithium-ion battery and smartphone component applications. Demand for HPA is forecasted to more than triple to 87,000tpa by 2024.
Analyst Comment: Altech identified the growing demand for HPA more than six years ago as it became aware that many new technologies as well as traditional applications were dependent on HPA (synthetic sapphire, LED substrates, lithium-ion battery separators, and smartphone components).
This led the company to refine a known processing technology created by the US Government during the 1970/80's, which used kaolin (or aluminous clay material) as a feedstock for the production of HPA.
Six years later, the company has completed numerous studies including a Bankable Feasibility Study, signed a 10 year offtake agreement with Mitsubishi and is close to finalising all permits and approvals for the project's development.
The next major milestone for Altech is to close a debt financing facility with German bank KfW IPEX-Bank. Closing this facility will not only take the company one step closer to commencing construction (2H17) but should also see the significant appreciation in the current share price, which is currently at a significant discount compared to our valuation.
The information in this email should not be the only trigger for your investment decision. We strongly recommend you seek professional financial advice whenever making financial investment decisions.
Valuation: We initiated coverage on Altech with a valuation of $0.55 / share (SP $0.15 / share). As development milestones are achieved (debt & equity financing, construction and production) we will reduce our risk weighting (un-risked valuation $0.88 / share).
As always, we present our analysis differently as it is shown through a series of videos. This allows us to explain:
- A detailed review of our valuation analysis highlighting key assumptions and sensitivities;
- Investment and risk analysis, highlighting both upside and downside factors investors should be aware of before making an investment decision;
- Commodity Analysis - Review of HPA's uses, supply & demand factors as well as pricing;
- Offtake - Review Altech's 10 year offtake agreement with Mitsubishi;
- Virtual site trip to the Meckering Kaolin project and proposed facility in Malaysia; and
- A range of interviews with senior management.
To view the video, please visit:
About Altech Chemicals Ltd
HPA is a high-value, high margin and highly demanded product as it is the critical ingredient required for the production of synthetic sapphire. Synthetic sapphire is used in the manufacture of substrates for LED lights, semiconductor wafers used in the electronics industry, and scratch-resistant sapphire glass used for wristwatch faces, optical windows and smartphone components. There is no substitute for HPA in the manufacture of synthetic sapphire.
Global HPA demand is approximately 25,315tpa (2016) and demand is growing at a compound annual growth rate (CAGR) of 16.7% (2016-2024), primarily driven by the growth in worldwide adoption of LEDs. As an energy efficient, longer lasting and lower operating cost form of lighting, LED lighting is replacing the traditional incandescent bulbs.
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Altech Chemicals Ltd