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Altech Chemicals Receives Financing Interest For High-Purity Alumina

Altech Chemicals (ASX:ATC) has attracted interest in its high-purity alumina (HPA) project from a major German bank experienced with similar investments in the Asia-Pacific region.

Altech's HPA operation encompasses mining properties 130 kilometres from Fremantle port in Western Australia and a proposed processing plant in Malaysia with a throughout capacity of 4,000 tonnes per annum.

The bank - which is a leading German export and project finance specialist with experience in the debt financing of worldwide mining and chemical projects - has delivered a Letter of Interest (LOI) expressing its interest to arrange senior debt financing for the project.

The LOI contemplates financing that will maximise the use of export credit insurance cover under the German federal government backed project finance federal export guarantees.

The German Export Credit Agency (which guarantees foreign trade) was identified as applicable to Altech's HPA project because the majority of the plant and equipment will be sourced from European Union manufacturers and because German group M+W is the appointed engineering, procurement and construction contractor.

Altech, M+W and the bank are now expected to submit a presentation to the agency's administrator from which an initial determination of the eligibility for funding will be made.

This traction in securing additional funds for the HPA project follows the completion of A$1 million placement last month with a cornerstone Asian investor.

The investment by diversified Malaysian industrial firm Melewar International investment Company represents the majority of a $1.13 million fundraiser announced by Altech in August aimed at progressing a detailed design phase of the project.

Recent milestones in strengthening Altech's HPA business have also included the signing of an agreement appointing Mitsubishi Corporation (TYO:8058) as the exclusive seller and distributor of the product to the Japanese market.

Japan accounted for 21% of global HPA demand in 2014.

Kaolin mining

A recent deal regarding the kaolin mining operations in WA that will feed the Malaysian HPA plant is now expected to generate up to A$3 million in cash plus royalties for Altech.

Last month, Altech finalised exclusive mining rights with Dana Shipping and Trading for up to 10 million tonnes of kaolin at the Meckering deposit

This arrangement includes a $1 million cash payment to Altech.

However, Dana has an option to increase its kaolin mining right to 30 million tonnes by paying an additional $2 million, and Altech will receive a 2% gross sales royalty on all bulk kaolin sales.

Only 130 kilometres from Fremantle port, Meckering contains 65 million tonnes of kaolin resources expected to provide an abundant, low-cost aluminous clay feedstock for an estimated +100 years mine life.

Altech's HPA project, however, only requires 4 million tonnes of kaolin for a 100-year project life.

The new rights arrangement will not constrain Altech's HPA project as Altech's right to mine kaolin takes priority over the mining rights granted to Dana and reciprocal non-compete obligations apply to both Dana and Altech.

The kaolin at Meckering is extremely low in impurities and is considered an ideal feed for the HPA plant.

High-purity alumina

HPA is a high-value, high-margin and highly demanded product as it is the critical ingredient required for the production of sapphire substrates which are used in the manufacture of LED lights as well as the manufacture of alumina semiconductor wafers and the scratch-resistant artificial sapphire glass used by various smartphone manufacturers.

There is no substitute for HPA in the manufacture of sapphire substrates, sapphire semiconductor wafers or scratchproof sapphire glass.

HPA is expected to be part of the next boom in high-tech materials such as rare earths, lithium and graphene.

Global HPA demand is about 19,040 tonnes per annum (2014) and demand is growing at an annual rate of 28%, primarily driven by the growth in LEDs, as this energy efficient, longer lasting and lower-cost form of lighting replaces traditional incandescent bulbs.

HPA demand is expected to at least double over the coming decade.

Analysis

The interest shown by the German bank to arrange the senior debt financing of the HPA project is an important preliminary financing step for Altech.

Although the process is still in its early days, delivery of an LOI from this highly experienced and well regarded bank reflects positively on the attractiveness of HPA among informed institutional investors.

Meanwhile, the latest mining rights deal for the project's kaolin operations in WA adds value to Altech as financing protocols and project evaluations continue.

Bankable Feasibility Study results for the project have contemplated a net present value of US$326.1 million, a capital cost of US$76.9 million and a payback period of only 3.8 years.

Project EBITDA was initially calculated to total US$59.4 million per annum with global HPA demand growing at an annual rate of 28%.

With HPA forecast to be part of the next "new age materials boom" like rare earths, lithium and graphene, the Melewar investment and sales partnership with Mitsubishi may prove prescient.

Potential for Altech to attract customers in this booming HPA market is particularly well supported by its new sales partnership in Japan, a country which comprises 21% of the global HPA market.

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