[MEDIA] Analyst comment: while the FIDS threw up a number of...

Analyst comment: while the FIDS threw up a number of surprises, the underlying message – that Altech is on track to become one of the lowest-cost (Opex US$9.90/kg versus HPA spot US$35-40/kg), fully integrated HPA producers using kaolin as the feedstock – should not be forgotten.

The most notable change in the FIDS compared to previous studies was the increase in capital costs, which surpassed our expectations (US$298 million compared to TSI’s estimate of US$85 million). That said, the increase in capital costs is accompanied by a significant increase in the targeted debt facility to US$185 million, which is in the final stages of approval process (expected date of approval – 14 December 2017).   

Capital costs aside, the FIDS highlighted numerous positives, potentially the most significant being a number of assurances regarding the project’s development from EPC contractor SMS Group. Firstly, the construction of the facility will be a fixed-price, lump-sum EPC contract, meaning SMS Group rather than Altech will cover any over-run in costs. Secondly, and more importantly, SMS Group will provide a throughput and process/quality guarantee. This unexpected assurance from SMS Group represents a massive vote of confidence, especially since Altech’s is the first commercial HPA project of its type. Finally, SMS Group has contributed AU$5 million of the recent capital-raising, further emphasising its long-term support of Altech and belief in the project’s potential. 

The information in this email should not be the only trigger for your investment decision. We strongly recommend you seek professional financial advice whenever making financial investment decisions. 

Valuation: we have decreased our valuation for Altech to $0.43 /share (previously $0.55/share). The valuation comes with an additional 40% risk weighting (unrisked valuation $0.64/share). As development milestones are reached, we will reduce our risk weighting (the initial consideration being debt financing, which could be eliminated before year’s end).

While our project NPV remains similar, our valuation on a per-share basis is reduced due to a forecasted increase in dilution (TSI assumption). The price of the future capital-raising, which at this stage remains unknown (TSI estimate – $0.14/share), will also influence our valuation. Moreover, when project financing concludes the additional risk weighting (5% debt and 20% equity) will be removed.  

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