Altech Chemicals (ASX:ATC) breaks ground at HPA site


by Anna Napoli

Altech Chemicals Limited (ASX:ATC) Managing Director, Iggy Tan provides an update on the company's High Purity Aluminium plant in Malaysia, funding and underlying demand.

Anna Napoli: Hi, I'm Anna Napoli from the Finance News Network, and joining me now from Altech Chemicals is Managing Director Iggy Tan. Iggy, welcome to FNN.

Iggy Tan: Hi Anna. How are you?

Anna Napoli: Altech is developing a high purity alumina plant in Johor, Malaysia. How's the plant progressing?

Iggy Tan: We're quite advanced now. We have recently started the stage one construction. As you know, Anna, the feedstock from the high purity alumina plant in Malaysia is actually kaolin from Western Australia, in Meckering. So, our intention is to mine the kaolin out of Western Australia, ship it to Johor in Malaysia, and there's a chemical plant that will turn that kaolin into high purity alumina, which is really aluminum oxide, but the purity is around 99.99 per cent so, a very pure material, and it's worth around USD$40,000 a tonne. Now, the interesting thing about high purity alumina, it's the feedstock for the LED industry. So, every LED has a sapphire wafer substrate, and to make a sapphire wafer substrate you need high purity alumina.

The other interesting thing is also in the lithium battery industry. You've heard of the Samsung Galaxy battery fires? Well, in a lithium battery, there's positive and negative terminals, and there is a plastic separator that keeps them from touching each other because with a positive and negative touch, you have a thermal runaway, and you have a battery fire. What they found is that incorporating high purity alumina in these separators, it improved the battery safety, and now this is one of the other bigger users of high purity alumina in the world.

Anna Napoli: And Iggy what sort of demand is there for high purity alumina, and what's the pricing?

Iggy Tan: Yeah, so currently the world uses about 30,000 tonnes per annum, but it's expected to climb to about 90,000 by 2025. So, you can see quite a large growth expected. Much the same as lithium from the lithium battery industry. Sort of similar growth profiles happening, and currently the price in Japan, our main markets are Japan, Korea, and maybe Taiwan, the current price is around USD$40,000 a tonne. So, the price has been very stable, and so as you can see it's a high price product.

Anna Napoli: Let's talk about your plant in more detail. Can you tell us about the construction timeline?

Iggy Tan: The whole construction process is about two years. We're currently going through the final financing stage of it, so we've decided to commence the construction while the financing is still being closed off. We recently have closed off USD$190 million from a German bank called KFW IPEX-Bank, and we're now processing a $90 million dollar Mezzanine debt from a global bank, and it's going through its due diligence. So, hopefully we will close that by the end of the year, but we've started the construction process. It'll take us two years, and we expect the first product out by 2021.

Anna Napoli: Okay, and what about the output?

Iggy Tan: Four and a half thousand tonnes per annum is the rate of capacity, producing 99.99 per cent high purity alumina.

Anna Napoli: Can we talk about the financing and economics of the plant?

Iggy Tan: So, the economics is very strong. With USD$40,000 a tonne as revenue, the project generates an NPV of about USD$1.1 billion, and at its full rate, it generates around USD$133 million per annum, at its full rate. So, you can see it generates a lot of cash. The payback is around 2.4 years, and the internal rate of return is around 33 per cent. So, you can see it's a high value, high margin product.

Anna Napoli: Iggy, in terms of competition and strategy, how is Altech positioning itself?

Iggy Tan: Well, the interesting thing is our technology is highly disruptive. So, the current producers of high purity alumina actually uses aluminum metal as their feedstock, and because of that aluminum metal as their feedstock, is very expensive prices. Our prices uses kaolin, which is we have it as a deposit in Western Australia, and by using kaolin our cost of production is about a third or half the cost. So, you can see where disruptive price is, we will change the cost structure of the industry, and we have a big advantage being in Malaysia as well.

Anna Napoli: Final question now. Why should investors consider adding Altech to their portfolios?

Iggy Tan: Well, high purity alumina is a very similar thematic to the lithium industry. The growth is driven by lithium batteries as well as LEDs, and you can see the growth in LEDs around you. So today, LEDs is sweeping the world. The growth of LEDs are growing at about 16 per cent year on year. So, a very exciting demand profile, and it's an industry that is really an advanced material for new technologies, so very exciting industry.

Anna Napoli: Iggy Tan, thank you for the update.

Iggy Tan: Thank you, Anna.


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