Altech Chemicals Ltd (ATC)

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.

Key Points

  • 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.

DJ Carmichael Pty Limited, members of the Research Team; including authors of this report, its directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions in stocks mentioned in this report. DJ Carmichael Pty Ltd holds an immaterial holding in Altech Chemicals Ltd. DJ Carmichael Pty Ltd provides corporate advice to Altech Chemicals Ltd and has been paid a fee for these services. DJ Carmichael Pty Ltd acted as Lead Manager in two capital raisings for Altech Chemicals Ltd and was paid a fee for these services.

The analyst dos not own shares in Altech Chemicals Limited.

DJ Carmichael Pty Ltd is a wholly owned subsidiary of DJ Carmichael Group Pty Ltd ACN 114 921 247.

In accordance with Section 949A of the Corporations Act 2001 DJ Carmichael Pty Limited advises this document contains general financial advice only. In preparing this document DJ Carmichael Pty Limited did not take into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. Accordingly, before acting on any advice contained in this document, you should assess whether the advice is appropriate in light of your own financial circumstances or contact your DJ Carmichael Pty Limited adviser. DJ Carmichael Pty Limited, its Directors employees and advisers may earn brokerage or commission from any transactions undertaken on your behalf as a result of acting upon this information. DJ Carmichael Pty Limited, its directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly, from client transactions. DJ Carmichael Pty Limited believes that the advice herein is accurate, however no warranty of accuracy or reliability is given in relation to any advice or information contained in this publication and no responsibility for any loss or damage whatsoever arising in any way for any representation, act or omission, whether express or implied (including responsibility to any persons by reason of negligence), is accepted by DJ Carmichael Pty Limited or any officer, agent or employee of DJ Carmichael Pty Limited. This document is intended only for the use of the individual or entity to which it is addressed and may contain information that is privileged, confidential and exempt from disclosure under applicable law. If you are not the intended recipient or employee or agent responsible for delivering the message to the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication and its attachments is strictly prohibited.

The Author of this report made contact with Altech Chemicals Limited for assistance with verification of facts, admittance to business sites, access to industry/company information. No inducements have been offered or accepted by the company.

Recommendation Definitions

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
Period: During the forthcoming 12 months, at any time during that period and not necessarily just at the end of those 12 months.

Stocks included in this report have their expected performance measured relative to the ASX All Ordinaries index. DJ Carmichael Pty Limited’s recommendation is made on the basis of absolute performance. Recommendations are adjusted accordingly as and when the index changes.

To elect not to receive any further direct marketing communications from us, please reply to this email and type 'opt out ' in the subject line. Please allow two weeks for request to be processed.

© 2018 No part of this report may be reproduced or distributed in any manner without permission of DJ Carmichael Pty Limited.

Paul Adams

Head of Research

Paul joined DJ Carmichael in 2006 as a Resource Analyst. Paul has an honours degree in Geology, is a member of the Australian Institute of Mining and Metallurgy and has 16 years experience in the mining industry in exploration, open pit, underground and operational roles, both in Australia and overseas. Before joining the company, he was Chief Geologist and Evaluations Manager at Placer Dome's Granny Smith mine. Paul has a Graduate Diploma in Applied Finance and Investment, fromthe Financial Services Institute of Australasia.