With commissioning of parts of the Newcastle Iron Recovery Plant...

With commissioning of parts of the Newcastle Iron Recovery Plant now underway and production a near term likelihood, it is worth revisiting the potential value of APG.

Past announcements and the most recent broker report on APG’s website note that when the Newcastle plant is running at full capacity (recycling 34,000 tpa of spent pickle liquor and 17,000 tpa of mill scale, to produce 18,000 tpa of concentrated hydrochloric acid and 18,000 tpa of premium iron chips or briquettes) it will generate an annual net profit of around $7.3 million. This level of profit would pay back the plant cost within 2 to 3 years (indicating an internal rate of return somewhere between 33% to 50%).

Viewed another way, that $7.3 million represents about 0.7 cents a share in earnings. On a price-earnings basis — using a modest ratio of around X 10 — the Newcastle plant alone would support a fair value for APG of around 7 cents a share.

But APG’s value extends well beyond the success of their Newcastle plant:

• This plant is likely to be the first of many. Proof of commercial operation in Newcastle provides a compelling case for similar plants to be rolled out at iron and steel mills around the globe. As APG has previously noted, this could be via a build own operate, joint venture or licensing approach. And APG has already laid the groundwork for this to happen. Past announcements indicate that its agreements with CMC Metals and Orient Zirconic (see quotes from announcements below) pave the way for entering the massive US and China markets, where a huge number of mills (over 250 in the US and an estimated 2700 in China) would benefit from the environmental and commercial advantages offered by an APG iron/acid recovery plant.

• The Newcastle plant is relatively small scale in the scheme of things, and additional plants are likely to be much larger (read ‘produce larger profits’).

• The application of APG’s technology extends beyond the iron and steel industry. Witness Kronos’s interest in APG’s acid regeneration technology because of its application to process chloride waste from titanium dioxide pigment manufacturing (announcement of 18 November 2010) and Orica’s interest in its application to the chemical industry around the globe (announcement of 13 August 2010.

• Finally, while the immediate focus on APG is on the success of its iron recovery plant, its technology for producing ultra-high grade synrutile with a titanium dioxide content of 97-98% holds the promise of another profitable string to its bow down the track. However, for the present, the value of the company rests on the likely profitability of its iron/acid recovery technology.

Taking just the first and second point into account, it is reasonable to expect APG could in the near future own or license multiple iron recovery plants and that many of those would be of significantly larger scale than that at Newcastle.

The implications for its share price seem obvious.

Even if we assume same size plants, every additional plant built and owned by APG could easily add 7 cents of value per share. How many plants are we looking at? Lots! Or if it licensed the technology for some fraction of that, how many licenced plants globally? Lots and lots!

Plug in your own numbers, but however you look at it, after a long wait APG’s future is finally looking very rosy indeed.



Announcement of 15th August 2012
Austpac and Orient Zirconic sign two agreements (placing 33 million shares at 6 cents (a premium to the then market price) and selling WIM 150)
…
Orient Zirconic recognised the potential of Austpac’s steel mill waste recycling technology and agreed to pay a premium for the shares. Consequently THE TWO COMPANIES HAVE AGREED THAT ONCE AUSTPAC'S RECYCLING TECHNOLOGY IS COMMERCIALLY PROVEN AT THE NEWCASTLE IRON RECOVERY PLANT, FOR A PERIOD OF 12 MONTHS THEY WILL JOINTLY INVESTIGATE THE POTENTIAL FOR COMMERCIAL APPLICATIONS FOR THAT TECHNOLOGY WITHIN THE CHINESE STEEL INDUSTRY. (Emphasis added)


Announcement of 13th September 2010
Agreement for the supply of raw materials and marketing of products from the Newcastle Iron Recovery Plant
…
Austpac is pleased to announce that the Company has signed an agreement with CMC Cometals Australia (‘CMCCA’) for the supply of raw materials and for the marketing of Austpac Iron products, in the form of chips or briquettes and char, two valuable commodities that will be produced at Austpac’s Newcastle Iron Recovery Plant.

CMCCA is a division of CMC (Australia) Pty Ltd, which is owned by Commercial Metals Company (‘CMC’) of the USA. CMC and its subsidiaries manufacture, recycle and market steel and metal products, related materials and services through a network including steel mini-mills, steel fabrication and processing plants, construction-related product warehouses, a copper tube mill, metal recycling facilities and marketing and distribution office in the United States and in strategic international markets.

The mutually renewable agreement will have an initial term of two years from the commencement of production and covers Plant commissioning and initial operations and contemplates Plant expansion.

Austpac’s EARS recycling process will be widely applicable throughout the steel industry, and CMCCA WILL GIVE AUSTPAC A SIGNIFICANT ADVANTAGE AS THE COMPANY MOVES TO COMMERCIALISE ITS TECHNOLOGIES AROUND THE WORLD. (Emphasis added)


Announcement of 13th August 2010
Agreement for the supply of spent pickle liquor and the sale of regenerated hydrochloric acid for the Newcastle Iron Recovery Plant
…
Orica ( www.orica.com ) is an Australian-owned, publicly-listed global company with operations in around 50 countries. Orica has three business divisions; Orica Mining Services, Minova and Orica Chemicals, and the Company is currently ranked as one of the top 30 companies listed on the Australian Stock Exchange based on market capitalization.

The initial agreement, which is mutually renewable, will continue for two years and covers Plant commissioning, initial operations and has provisions for the expansion of Plant capacity. THE PARTIES ALSO INTEND TO EXPLORE MUTUALLY BENEFICIAL OPPORTUNITIES TO BROADEN THE USE OF AUSTPAC'S ACID REGENERATION TECHNOLOGY IN THE CHEMICALS INDUSTRY AT OTHER LOCATIONS AROUND THE WORLD. (Emphasis added)