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Altech Chemicals study confirms US$505 million valuation

Published: 15:45 24 Oct 2017 AEDT

HPA Plant General Layout and 3D View
Using higher alumina prices more than doubles the valuation to US$1+ billion

Altech Chemicals (ASX:ATC) has received positive results from a final investment decision study (FIDS) for the development of a high purity alumina plant in Malaysia and kaolin mine in Western Australia.

The FIDS economics confirm a pre-tax net present value (NPV) of US$505 million which incorporates a capital cost of US$298 million.

Notably, the high purity alumina (HPA) plant capacity has been increased to 4,500 tonnes per annum from 4,000 tonnes per annum.

German government-owned KfW IPEX-Bank has proposed a revised total target debt package of US$185 million and is targeting to obtain debt approval as sole debt provider.

The target date of 14 December 2017 remains unchanged as the date for the final decision by German government for the export credit agency (ECA) cover.

Iggy Tan, managing director, commented

“The FIDS has confirmed the financial and technical robustness of the company’s HPA project.

“The focus for Altech over the next two months is to continue to work closely with KfW IPEX-Bank and the appointed independent expert consultant to prepare for the German government inter-ministerial committee meeting on 14 December 2017.

“A positive outcome will mean we attain the US$165 million “offer of cover” for the majority of the project debt and as the bank approvals process will run in parallel; the total target debt amount of US$185 million.”

Financial metrics

The project’s NPV is US$505.6 million at a discount rate of 7.5%, payback (at full rate) is 3.9 years and annual EBITDA is US$75.7 million at full production.

The internal rate of return (IRR) is 21.9% with a gross margin on sales of 63%.

HPA pricing is conservative

The HPA price used in the project’s financial model is US$33.72 per kilogram in year 1, reducing to US$26.18 per kilogram in year 9 and maintained at this level until year 30.

This results in a weighted average HPA price of US$26.90 per kilogram over the 30-year project life.

The current market price of HPA in Japan is ~US$40 per kilogram, which suggests the FIDS financial model is conservative.

If an HPA price of US$40 per kilogram was applied to the FIDS financial model, the project’s NPV increases to ~US$1.09 billion.

Project finance details

KfW IPEX-Bank has proposed a revised total target debt package of US$185 million and is targeting to obtain debt approval as sole debt provider.

This is subject to the sourcing split and eligibility for German government export credit cover (ECA cover) of up to US$ 165 million.

The balance of US$ 20 million will be a 5-year tenure loan at customary lending terms.

The target date of 14 December 2017 remains unchanged as the date for the final decision by German government inter-ministerial committee (IMC) for the ECA cover.

A positive decision from the IMC will permit KfW IPEX-Bank to finance the US$185 million project debt package, consisting of the up to US$165 million covered debt and US$20 million commercial debt.

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