Altech Chemicals (ASX:ATC) discusses its off-take sales agreement with Mitsubishi and HPA demand growth.


by Clive Tompkins

Transcription of Finance News Network Interview with Altech Chemicals Limited (ASX:ATC) Managing Director, Iggy Tan
Clive Tompkins: Hello, I’m Clive Tompkins for the Finance News Network. Joining me from Altech Chemicals Limited (ASX:ATC) is Managing Director, Iggy Tan. Iggy, welcome back.
Iggy Tan: Thanks Clive.
Clive Tompkins: First up, can you start with an introduction to Altech Chemicals?
Iggy Tan: Altech is an Australian company. It’s listed on the ASX and we have a 4,000 tonne per annum high purity alumina project. And as you know, high purity alumina is used in the manufacture of LEDs, semi-conductors, watch faces, and so on. We’re at a very exciting phase. We’re in a debt funding stage and we recently announced the full off-take agreement with Mitsubishi Corporation (TYO:8058).
Clive Tompkins: I understand you’ve recently updated the bankable feasibility study. What were the results of that?
Iggy Tan: We have optimised the bankable feasibility study. We’ve shifted the beneficiation plant from Australia to Malaysia and we’ve also optimised the process. Consequently the financial numbers have improved enormously. For example, the MPV has increased from $326 million to $356 million. So very attractive numbers, internal rate of return has now gone up to 33 per cent. The payback for the project is a very attractive 3.7 years.
Clive Tompkins: That’s a very good set of numbers. So what are your costs like and how do they compare to competitors?
Iggy Tan: The operating cost is about $9,000 a tonne to produce and we sell this material for about $23,000 a tonne. So the margin is around $14,000 a tonne. So at 4,000 tonnes per annum, the project throws off about $56 million EBITDA every year – very attractive returns. Now the reason we’re so cheap, we think our competitors are probably close to $17,000 a tonne. And the reason we’re so cheap is because we own our own feedstock. We don’t have to buy aluminium metal like our competitors do. We also recycle a lot of the hydrochloric acid we use in the process. We’ve got a German hydrochloric acid plant supplier and finally, we’re in a low cost country like Malaysia.
Clive Tompkins: Your project has advanced quite quickly with the announcement of debt funding from German bank, KfW Bank. Can you tell us more?
Iggy Tan: We’re at a very exciting stage of project finance. We’re actually accessing debt funding out of Germany from the KfW IPEX-Bank, which is a German bank. And out of that $60 million, $40 million is export credit finance. What that means is it’s low interest rates and it’s underwritten by the German Government. Now the reason we can access export credit finance, is because nearly 60 per cent of our plant comes from German suppliers. And traditionally what governments do is they support their exporters, through this export credit scheme. So we are targeting about $60 million debt, we think that by the end of the year that we would have final term sheets for it.
Clive Tompkins: And when do you expect final term sheets?
Iggy Tan: Well the due diligence process is proceeding very well. We’re in the process of formal application to the German Government, and we are just about to appoint independent technical auditors for the project. Through that whole process, we hope to have as I mentioned before, final term sheets for the debt by the end of the year. And more importantly, during this phase we’re concentrating on completing our detail design with our EPC contractor, which also happens to be a German supplier, M+W Group.
Clive Tompkins: Altech recently announced a full off-take sales agreement with Mitsubishi. What does that entail?
Iggy Tan: I’ve been working with Mitsubishi for many years now. I guess they understand the quality of plants that I built in the past. They understand the product quality coming from those plants. And Mitsubishi also believes in the demand for this product going forward and the growth expected from the LED sector, the semi-conductor space and phosphor TV screens. So they’ve taken a view that they want to partner us as a long-term buyer of our product. And consequently, we’ve signed a 10-year agreement, a sales agreement.
Clive Tompkins: Now to finances, you’ve just raised $2 million from a placement and a share purchase plan, and another $2 million from the sale of an exploration lease. Where are the funds going?
Iggy Tan: The funds are going to be used for the detail design phase of the project.  It allows for permitting of projects in both countries and also the running of the due diligence process from the banks.
Clive Tompkins: Last question Iggy. Where would you like to see the company by year’s end?
Iggy Tan: So by year-end, we hope to have the final term sheets for the debt sorted out with KfW-IPEX Bank. We would have finished the detail design work for the plant. And hopefully in early 2017, we would start the piling onsite in Johor in Malaysia.
Clive Tompkins: Iggy Tan thanks for the update.
Iggy Tan: Thank you Clive.

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