Perth, Oct 30, 2017 AEST (ABN Newswire) - Altech Chemicals Ltd (
ASX:ATC) has announced the results of a Final Investment Decision Study (FIDS) for the development of a 4,500-tpa, High Purity Alumina (HPA) operation. This preceded the company's announcement of a successful AU$17 million capital-raising. Highlights of both announcements include the following.
- An increase in annual HPA production to 4,500 tpa (previously 4,000 tpa).
- Pre-tax NPV US$505 million (7.5% discount rate).
- Internal rate of return - 22%.
- Capital cost - US$298 million.
- Total target debt by KfW IPEX-Bank - US$185 million.
- Target date for export credit cover approval - 14 December 2017.
- Successful AU$17 million capital-raising at $0.14 per share.
Analyst comment: while the FIDS threw up a number of surprises, the underlying message - that Altech is on track to become one of the lowest-cost (Opex US$9.90/kg versus HPA spot US$35-40/kg), fully integrated HPA producers using kaolin as the feedstock - should not be forgotten.
The most notable change in the FIDS compared to previous studies was the increase in capital costs, which surpassed our expectations (US$298 million compared to TSI's estimate of US$85 million). That said, the increase in capital costs is accompanied by a significant increase in the targeted debt facility to US$185 million, which is in the final stages of approval process (expected date of approval - 14 December 2017).
Capital costs aside, the FIDS highlighted numerous positives, potentially the most significant being a number of assurances regarding the project's development from EPC contractor SMS Group. Firstly, the construction of the facility will be a fixed-price, lump-sum EPC contract, meaning SMS Group rather than Altech will cover any over-run in costs. Secondly, and more importantly, SMS Group will provide a throughput and process/quality guarantee. This unexpected assurance from SMS Group represents a massive vote of confidence, especially since Altech's is the first commercial HPA project of its type. Finally, SMS Group has contributed AU$5 million of the recent capital-raising, further emphasising its long-term support of Altech and belief in the project's potential.
Valuation: we have decreased our valuation for Altech to $0.43 /share (previously $0.55/share). The valuation comes with an additional 40% risk weighting (unrisked valuation $0.64/share). As development milestones are reached, we will reduce our risk weighting (the initial consideration being debt financing, which could be eliminated before year's end).
While our project NPV remains similar, our valuation on a per-share basis is reduced due to a forecasted increase in dilution (TSI assumption). The price of the future capital-raising, which at this stage remains unknown (TSI estimate - $0.14/share), will also influence our valuation. Moreover, when project financing concludes the additional risk weighting (5% debt and 20% equity) will be removed.
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About Altech Batteries Ltd
Altech Batteries Limited (ASX:ATC) (FRA:A3Y) is a specialty battery technology company that has a joint venture agreement with world leading German battery institute Fraunhofer IKTS ("Fraunhofer") to commercialise the revolutionary CERENERGY(R) Sodium Alumina Solid State (SAS) Battery. CERENERGY(R) batteries are the game-changing alternative to lithium-ion batteries. CERENERGY(R) batteries are fire and explosion-proof; have a life span of more than 15 years and operate in extreme cold and desert climates. The battery technology uses table salt and is lithium-free; cobalt-free; graphite-free; and copper-free, eliminating exposure to critical metal price rises and supply chain concerns.
The joint venture is commercialising its CERENERGY(R) battery, with plans to construct a 100MWh production facility on Altech's land in Saxony, Germany. The facility intends to produce CERENERGY(R) battery modules to provide grid storage solutions to the market.
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Publisher's note
TSI will only initiate coverage of a company that passes our internal investment checklist. Once a company has passed this checklist, we will initiate coverage of that company and follow up with ongoing updates and commentary on its activities. Articles and videos produced and published by TSI are NOT Research Reports in terms of ASIC Regulatory Guide 79.
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