Carmichael sets Altech price target at more than double
A leading Perth broker has set a share price target for Altech Chemicals that is more than double the company’s current share price.
A research report released recently by D.J Carmichael finds that Altech’s exciting high-purity alumina plant proposed to be built in Malaysia is not yet fully reflected in the company’s share price.
The report comes as Altech enters the final stages of planning development for the plant that will be fed with super high purity kaolin mined from the company’s Meckering deposit east of Perth.
Altech say there is enough kaolin in their Meckering resource to feed the plant for 230 years.
DJ Carmichael last week set a price target for Altech of 37 cents, which compares favourably to the recent price of 16.5 cents.
Carmichael’s price target was set in part as a response to Altech’s recent coup in winning a heavily subsidised, US$170 million debt package from a German government bank that was guaranteed by the German Government.
Germany operates a debt guarantee scheme for large projects that choose to use German engineering and Altech managed to access this scheme following their decision to use giant German EPC firm SMS Group.
After an exhaustive due diligence program with German government bankers that lasted almost 18 months, Altech earlier this month finalised a debt commitment from KfW IPEX-Bank for US$170 million guaranteed by the German Export Credit Agency and US$20 million on normal commercial terms over seven years.
While details of the US$170 million component are confidential, DJ Carmichael noted that facilities of this kind typically attracted interest rates of between 2% and 3% above the London Interbank Offering or “LIBOR” rate, which is currently just 2.31%.
The only condition on the debt funding is that Altech raises the US$108 million balance of the capex costs itself. The company already has a head start thanks to SMS group who likes the project so much that it has already committed to an equity injection of US$15 million into Altech.
SMS has also given guarantees on the performance and completion of the plant which was one of the pre-conditions for German government to back the project.
Altech is well advanced in talks with potential partners and has flagged that it could meet the equity funding target through subordinated mezzanine finance, straight equity and/or a sell down of equity in the 100%-owned project.
DJ Carmichael said that a straight equity raising of A$175 million, including A$31 million in working capital to cover the two-year construction period, implied a base case value per share of 37 cents.
However, the base case value could be as high as 42 cents if Altech opted to partially sell project down which would be mean fewer Altech shares in the market.
One of the most interesting aspects of the new report is the effect on the project of improvements insisted upon by the German bankers during the due diligence process.
The production capacity of the project has now been increased from 4,000 to 4,500 tonnes per annum, higher quality stainless steels will be used and, most importantly, there are now two product streams – sapphire grade HPA beads and ultra-fine powder for sale to manufacturers of lithium ion batteries.
Whilst these changes resulted in a dramatic increase in capex, the DJ Carmichael report notes “the additional capex is balanced by a much lower-risk project to Altech in terms of execution, financial and productivity risk.”
Altech itself has noted that since the debt package was approved it has been approached by a number of potential partners, who no doubt could take some comfort from the fact that the project has been endorsed by some of the toughest bankers in the world.
Meanwhile, Altech has lodged a new provisional patent application with the Australian Patent Office to reflect the refinements made to the project design during the due diligence process.
The patent application was originally made back in 2014 because Altech’s process to produce HPA from kaolin is unique given that it will skip the traditional step of creating aluminium metal as a pre-curser to the production of high-purity alumina.
Altech Chemicals (ATC)
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