US$190m project debt secured. Final funding due Q2
ATC has secured a US$190m debt funding package from KfW IPEX-Bank in Germany. It consists of US$170m via the German Export Credit Agency (ECA) scheme and US$20m through traditional debt on commercial terms. The successful conclusion of the debt financing for its high purity alumina plant is a major step for ATC, which now paves the way for final project funding to be secured. ATC aim to be the world’s largest independent supplier of HPA, which is an important constituent for the production of LED’s, Li-ion battery separators and mobile devices. We maintain our Buy recommendation on ATC and move our valuation up 15.6% to $0.37 per share.
- ATC achieve execution of US$190m debt funding package: In December 2017, ATC announced a credit approval for their application for project debt financing from the German-owned development bank, KfW IPEX-Bank. The US$190m debt package consists of a combination of Export Credit Agency cover (ECA) and traditional bank debt. The Final Investment Decision (FID) Study, completed in 2017, estimated a total pre-production capex spend of US$298m. The debt funding package therefore represents 64% of the total.
- Paves the way for equity raising: ATC has now commenced the project equity funding process. ATC has stated that the final funding mix may include subordinated mezzanine finance, straight equity and/or project level equity participation or project level joint ventures. ATC state the final mix will take into account funding costs and equity dilution to current shareholders. We note that the EPC contractor, SMS group, for the project build in Malaysia has committed to a total of US$15m in equity.
- Due diligence identifies twin product stream: ATC’s proposed processing plant in Johor, underwent an arduous (and expensive) near 18-month due diligence period by the German-based team. The DD identified an opportunity for the product finishing line to produce two HPA products – a beaded HPA product for use in the synthetic sapphire glass industry and a fine powder version of HPA for use by battery separator manufacturers. The production capacity was also adjusted upwards to 4,500tpa from the 4,000tpa envisaged in the BFS.
- Updated financial model: Now that the pre-production capex has been settled and execution of agreements completed, we have updated our financial model for the HPA project. We increase our output in-line with ATC’s twin production line, increased our capex estimates (in-line) and used updated price forecasts for HPA. We test two scenarios for additional funding requirements 1) a straight equity model and 2) a part sell-down of the project to a strategic investor. The parte-quity sell-down on our base case indicates a +14% valuation change over straight equity (assuming A$175m of additional capital required, raised at $0.20 per share).
- Recommendation and Valuation: We maintain our Speculative Buy recommendation noting that achieving the equity component of the project financing is the last major hurdle. We increase our valuation by 15.6% valuation to $0.37 from $0.32 per share. In our part equity sell-down scenario, our valuation moves to $0.42 per share.
Research report, accurately expresses the personal view of the Author.
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SPECULATIVE BUY – Potential 10% or more outperformance, high risk
BUY – Potential 10% or more outperformance
HOLD – Potential 10% underperformance to 10% over performance
SELL – Potential 10% or more underperformance
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