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Representatives from KfW IPEX-Bank, Euler Hermes, SMS and the Altech Board in Dusseldorf, Germany

German Gov to guarantee Altech project debt in exquisite funding deal

Perth based Altech Chemicals appear to have pulled off a major financial coup with the announcement last week that the German Government would provide a debt guarantee for their proposed Malaysian high purity alumina plant that will be fed with Kaolin, mined in Meckering, Western Australia.

Whilst exact details of the guarantee are still to come, Altech have previously said they were looking to secure a German Government debt guarantee for up to USD$165m of the USD$185m debt targeted to finance the USD$298m project.

The plant will be built by massive German engineering firm SMS Group who have also provided a throughput, processing and quality guarantee to Altech as part of a requirement to secure the debt guarantee.

The German Government operate an export credit insurance debt guarantee scheme for organizations that use substantial German content when designing and building their projects.

Altech have been negotiating a debt term sheet with German bank KfW IPEX-Bank Gmbh, the terms of which will no doubt be greatly enhanced by the Government guarantee, which will now have the effect of de-risking the loan.

Whilst the interest rate proposed has not yet been announced, leading Perth stockbroking firm, DJ Carmichaels, previously said that with the provision of the Government debt guarantee, the rate could be as low as Libor plus 2-3%.

The USD Libor interest rate, which is the very low rate that banks lend money to each other at, generally hovers at between 1-2%.

Not only will the debt guarantee catapult the project into the “most likely will happen” category, but it will also dramatically reduce interest payments and boost net profits to be derived from an expected annual EBITDA of USD$76m.

Altech have pulled out all stops when it comes to de-risking this project that will now have its debt guaranteed, its throughput, processing and quality of output guaranteed and the first ten years of production snapped up by Mitsubishi.

The have also negotiated a fixed price capex contract to build the plant in Malaysia.

High purity alumina, that is derived from kaolin, is in highly sought after right now with the demand curve expected to lift exponentially in coming years.

It is used in the manufacture of a wide variety of “in-vogue” products such as lithium-ion battery anodes, scratch resistance mobile phone faces and LED lights to name just a few.

The company’s kaolin deposit in Meckering is world class and Atlech say it could have enough feedstock to cover up to 250 years of high purity alumina production.

It is so pure and contains so few impurities that management believes it can be upgraded to 99.99% high purity alumina that will fetch a premium price.

Despite similar quality product selling for USD$40 per kg in Japan right now, Altech’s financial model is based on just USD27kg, further de-risking the project.

If Altech’s $27kg assumption holds, then the project will show an NPV of USD$505m, however if the current price of USD$40kg remains, then the project NPV skyrockets to USD$1.1b.

The company currently has 420m shares on issue and its share price is 22.5c a share.

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