A recent article by Tim Boreham
Altech Chemicals (ATC)
Just as diamonds are compacted carbon, sapphires are derived from alumina subject to immense heat and like diamonds they can also be grown artificially.
The blue tinge of the sapphires – the part that makes them so alluring –is the result of impurities. “Just buy your wife Altech shares instead,” counsels Altech chief Iggy Tan.
We’ll avoid that advice in the interest of domestic harmony, but Tan may well have a superior notion of value as Altech seeks to become a leading provider of the key ingredient for synthetic sapphires: alumina of 99.99 per cent purity.
The market allure of high purity alumina (HPA) lies notwith the content of jewellers’ windows, but in the emerging market for unscratcheable and unbreakable mobile and watch sapphire screens.
To hammer the point home – literally - Tan’s presentation to the recent Australian Microcap Investment Conference was accompanied by vision of an Apple Watch screen being attacked with sandpaper, a mallet and then a drill. (The screen emerged intact, but don’t try this one at home folks).
Sapphires are also used as substrates in LED lighting and to replace the plastic separators in lithium ion batteries that are prone to catch fire (as with the Samsung devices banned by airlines).
Altech owns the Meckering kaolin (clay) deposit in WA, a source of alumina feedstock leached of all impurities (such a sodium) over millions of years.
Altech plans to build a 4500 tonnes per annum processing plant in the Malaysian state of Jahor to convert the material, shipped from Fremantle, to high purity alumina.
Making sapphires involves heating the metal to 2000 degrees Celsius and growing the crystals over 21 days.
A bankable feasibility study (which is due to be updated) costs the project at $80 million, with a 3.7 year payback period and producing annual ebitda of $55 million.
Tan contends the process is half the cost of conventional producers such as Nippon and Sumitomo, who have to buy the aluminium metal derived from molten bauxite in an energy-intensive process.
On his rough equation, a product that costs $US9000 per tonne to make currently sells for $US27, 000/t. The current global market is not big – 25,000 tonnes – but is forecast to grow at 17% per annum.
Put another way, the world will need four of Altech’s proposed plants to satisfy just the battery demand by 2026.
Altech has the support of Mitsubishi, which has signed a ten-year off take agreement for all output. Tan, we add, founded and ran the lithium developer Galaxy Resources so is no virgin to development projects.
The really hairy bit is raising $70 million of debt, but the company hopes to secure the support of German export credit finance house KFW Finance (a Teutonic supplier will build some of the plant).
Expect a capital raising as well. And what if the loan is not forthcoming? After all, Malaysia has been a scary place for the likes of rare earths producer Lynas, which ran into near fatal problems at its Kuantan processing plant.
“There is no plan B,” says Tan.
Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstance there have been any inducements or like made by the company mentioned to either IIR or the Author. The views here independent and has no nexus to IIR’s core research offering (www.independentresearch.com.au). The views here are not recommendations and should NOT be considered as general advice in terms of stock recommendations in the ordinary sense.
Published: Friday, November 03, 2017
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