Emerging high purity alumina (HPA) producer Altech Chemicals (ASX: ATC) is making good progress on the construction of its Malaysian processing plant with a view to become a world-leading supplier of 99.99% (4N grade) HPA for the lithium-ion battery industry.
By the end of the September quarter, the Australian company had completed early works construction for stage two of its planned 4,500 tonnes-per-annum plant located in the southern Malaysian state of Johor.
Altech managing director Iggy Tan told Small Caps that the company is working hard to close finance for its vertically integrated project, which will process feedstock shipped from its 100% owned kaolin mine in Meckering, Western Australia.
Earlier in November, Altech announced an entitlement offer to raise $14.5 million with some of the funds to be used to pay off the stage two construction works, as well as for other HPA initiatives.
A total funding of US$413 million (A$562 million) is estimated for the project, with plant construction alone coming in at US$280 million (A$381 million).
The company has already secured US$190 million (A$259 million) under a senior project finance loan facility with German government-owned KfW IPEX-Bank. And it recently initiated a listed ‘green bond’ funding option that would secure up to an additional US$100m as an alternative to mezzanine bank debt.
HPA plant construction
Over the past two years, Altech has raised about $39 million to maintain project momentum and commence stage one and two construction at its 4,500tpa HPA plant site in Malaysia.
Stage one construction began in February 2019 and stage two was completed this July (following a lift of temporary restrictions due to the onset of the COVID-19 pandemic).
Mr Tan said the strategy to commence construction works prior to project finance close was an opportunity to “test and demonstrate the low level of construction risk for the location”.
“Although the Tanjung Langsat Industrial Complex is a mature industrial park and Altech was always confident of a construction start-up similar to that which may be experienced in Australia, there were benefits for all stakeholders in actually demonstrating this,” he said.
“Risks included the ease of obtaining construction permits, site access, environmental approvals, regulatory permits, the demonstration of ground conditions and the availability of competent subcontractors that would work safely and to international standards.”
Altech’s appointed engineering procurement and construction (EPC) contractor, a subsidiary of Germany’s SMS group, demobilised from the site in early July, but Mr Tan said the site is well positioned for the rapid restart of construction activities once additional project funding is secured.
Conservative cash flow modelling of the HPA project has demonstrated a pre-tax net present value of US$505.6 million (A$688.5 million) for a 30-year operation and an estimated payback period of 3.8 years.
HPA market outlook
HPA is a high-value, high-margin and highly demanded product required in the production of synthetic sapphire for the fabrication of substrates for LED lights, semiconductor wafers for the electronics industry and scratch-resistant sapphire glass.
HPA is also increasingly consumed in the manufacture of lithium-ion batteries, where it is applied as a coating on the polymer anode/cathode separator sheets used in batteries to reduce separator shrinkage and battery combustibility.
According to an independent market study commissioned by Altech, global 4N (that is, a purity level of 99.99% or greater) HPA demand was around 19,000tpa in 2018 and is estimated to increase at a compound annual growth rate of 30% to about 272,000tpa by 2028, driven primarily by the rapidly expanding lithium-ion battery and LED manufacturing sectors.
Mr Tan said demand growth for 4N HPA would also be driven by electric vehicle developments within Europe.
“Lithium-ion battery cell manufacturing capacity already under construction in Europe amounts to 300KWh annually by 2025. Demand for HPA as a coating on battery separators from such annual production is estimated at 25,000 tonnes per year,” he said.
Potential second HPA plant in Germany
In July, Altech’s German subsidiary signed an option to purchase a 10-hectare site in a Saxony industrial park to evaluate the viability of building a second HPA plant. This idea was strongly supported by the Saxony state government, which offered the company a grant of €7,380,000 (A$12 million).
“Altech remains focussed on delivering the close of funding for our first HPA plant in Johor, Malaysia and the recommencement of construction. However, by evaluating this opportunity in Germany we are quickly responding to Europe’s push to bring its supply chains closer to home and to increase its self-reliance for critical raw materials – such as those that are used in the manufacture of lithium-ion batteries,” Mr Tan said.
“We see this as a potential opportunity that cannot be ignored, especially given Altech’s strong established links to Germany – both on our share register, our board, and the relationships we have built with SMS group and German government-owned KfW IPEX-Bank,” he added.
Altech said funds from its most recent $14.5 million capital raising will be partly applied to the company’s various European initiatives, which also include the listed green bonds.
The non-renounceable pro-rata entitlement deal is offering eligible shareholders more than 363.3 million shares at $0.04 each on a 2:5 basis, plus one free attaching option for each two new shares subscribed.
Silicon powder collaboration
Meanwhile, Altech has announced a new collaboration with leading silicon powder supplier Silico Ferrosolar to develop a high capacity, long life cycle silicon anode active material targeted for use in lithium-ion batteries.
Under the 12-month partnership, the companies will analyse the possibility of using Altech’s HPA and technology to coat specifically designed silicon particles supplied by Silico Ferrosolar. Altech will supply the coating technology and sole fund the test work.
Citing announcements from Tesla’s recent Battery Day, Mr Tan said silicon solutions are expected to “dominate the battery market over the next five to seven years”.
“Silicon has almost 10 times the (theoretical) capacity compared to carbon-based materials, at some 3500mAh/g. Next to its superior electrochemical performance, silicon is also the most abundant material on earth after oxygen, eliminating potential shortage issues,” he said.
“Altech is developing anode-grade HPA and coating technology for the purpose of applying the coating to graphite particles that are typical of those currently used in the anode of the lithium-ion battery. We believe the same technology can be applied to Silico’s battery silicon powders