The whole announcementEnglish Courtesy TranslationYoubisheng...

The whole announcement

English Courtesy Translation

Youbisheng Green Paper AG: Conclusion of an option agreement to acquire up to 49% of Altech’s High Purity Alumina project held by Chemicals Australia PTY LTD (HPA Project).

Youbisheng Green Paper AG („YAG“), Heidelberg, ISIN DE000A2BPG14 and ISIN DE000A2LQUJ6, today signed an option agreement with Altech Chemicals Limited („Altech“) and Altech Chemicals Australia PTY LTD („Altech Australia“), which permits the Company to acquire up to 49% of the shares in Altech Australia’s HPA project for USUS$ 100 million. For this option, the Company pays a fee of EUR 500,000 in cash after closing. The option can be exercised until January 1, 2021. The contract is still under various conditions precedents, e.g. the completion of due diligence. The option is to be exercised using funds YAG intends to raise as part of the proposed capital increase in Germany and Europe.

Altech Australia plans to build a state-of-the-art, high-purity alumina (HPA) production facility using the kaolin raw material through its wholly-owned subsidiaries, Altech Meckering Pty Ltd and Altech Chemicals Snd Bhd in Malaysia.

HPA is a high-value, high margin and highly demanded product as it is the critical ingredient required for the production of synthetic sapphire and is increasingly used in the manufacture of lithium-ion batteries. Synthetic sapphire is used in the manufacture of substrates for LED lights, semiconductor wafers used in the electronics industry, and scratch-resistant sapphire glass used for wristwatch faces, optical windows and smartphone components. There is no substitute for HPA in the manufacture of synthetic sapphire. Manufacturers of lithium-ion batteries need HPA as a separator coating.

Global HPA demand is approximately 25,315tpa (2016) and demand is growing at a compound annual growth rate (CAGR) of 16.7% (2016-2024), primarily driven by the growth in worldwide adoption of LEDs. As an energy efficient, longer lasting and lower operating cost form of lighting, LED lighting is replacing the traditional incandescent bulbs.

Current HPA producers use expensive and highly processed feedstock materials such as aluminium metal to produce HPA. Altech plans the construction and operation of a 4,500tpa HPA plant at the Tanjung Langsat Industrial Complex, Johor, Malaysia. The plant will produce HPA directly from kaolin clay, which will be sourced from the Company’s 100%-owned kaolin deposit at Meckering, Western Australia. Altech’s production process will employ conventional “off-the-shelf” plant and equipment to extract HPA using a hydrochloric (HCl) acid-based process. Production costs are anticipated to be considerably lower than established HPA producers.

The production facility is planned by the German SMS Group, which also guarantees the functionality of the plant. There is also a offtake agreement for a large part of the production volumes with Mitsubishi Australia Ltd.

The advantages of the production facility are in particular the low production costs with the possibility of gradually expanding the plant capacities.

The investment volume for the plant in Malaysia is approx. US$ 300 million. KfW IPEX Bank has already committed US$ 190 million senior debt to the project under certain conditions. The remaining funding shall come through YAG’s investments into Altech Australia and US$ 90 million mezzanine finance via Macquarie Bank (currently under due diligence). To this end, YAG is planning to carry out a capital increase of up to EUR 75 million by issuing up to approx. 63 million shares at a price of EUR 1.10 per share by way of rights issue or at at least EUR 1.20 per share as part of a private placement of the shares not placed as part of the rights issue. The Extraordinary General Meeting, in which YAG asks its shareholders to approve the proposed capital increase, will take place today, July 17, 2019 at 1:00 pm in Heidelberg at the registered office of the Company.

The project economics shows a pre-tax net present value of USUS$ 505.6m at a discount rate of 7.5%. The payback period is 3.8 years at full rate (4.5 years real) and the pre-tax internal rate of return is 21.9%. The Project generates annual average net free cash of ~USD76m at full production with an attractive margin on HPA sales of ~63%.

Applying the current HPA price in Japan of US$ 40kg, the NPV of the project is US $1.1bn, the IRR 33%, payback is 2.2 years and EBITDA US$ 133m p.a. at full production.

The key terms of the option agreement are:

YAG has the right to acquire at least 10% (for a pro rata amount of US$ 20.408 million) up to a direct HPA project share of up to 49% for US$ 100 million by subscribing shares in Altech Australia;YAG commits to sell the acquired shares back to Altech after 6 years from the start of the project („Project Financial Close“) based on a return of 15% p.a.;Altech receives the right to repurchase the acquired shares in Altech Australia from YAG prematurely on the same basis within 6 years,YAG may terminate its resale obligation at any time, thereby retaining its HPA Project participation, by paying a certain cancellation fee to Altech.

For this option, YAG will pay Altech Australia a non-refundable fee of EUR 500,000 in cash after closing.

Following signing of the option agreement, YAG is to be renamed „Altech Advanced Materials AG“.

Prospects for high-purity alumina (HPA)

In Germany and throughout Europe generally, there is heightened awareness and corresponding investment interest in the battery materials and green energy sectors (LED’s for example). There is an ever-increasing focus on the transition from vehicles powered by internal combustion engines to power by lithium-ion batteries, and the corresponding investment opportunities that this transition presents.

Altech’s HPA project attracts significant interest in Germany and Europe due to the USUS$190m of committed senior debt funding from German government owned KfW IPEX-Bank; the support of Euler Hermes – the German government export credit agency; the award of the contract for construction of the HPA plant to SMS group of Dusseldorf, Germany; and the Company’s already significant German shareholder base (approximately 20%), comprising Deutsche Balaton, Delphi, SMS Investments and various other German and European retail shareholders.

Germany and France have led the way and unveiled details of a strategy to support the creation of a major battery industry in Europe. In addition, stringent the 2020 EU CO² emission standards (95g per kilometre) are paving the way for the rapid displacement of internal combustion engine vehicles with electric vehicles (EVs). To meet the new standards, European automotive manufactures have announced plans for EV models – both fully electric and/or hybrids. A range of companies have recently committed to constructing or expanding battery cell plants in the EU – by 2023/2024 the expected effective capacity is 147 GWh. Global battery capacity is likely to be greater than 800 GWh in 2023.

Europe has correctly identified risks along the supply chain and the need for regional integration of the production process. The current reliance on Asian suppliers has been identified as a concern. Importantly, the EU has a coordinated strategy – offering incentives to buyers, strict CO2 emission standards and offering grants and subsidies to battery companies to locate their plants within the union. Volkswagen has stated that it would like to see all of the supply chain steps that it requires for electric vehicle manufacture to be established in Europe.

YAG believes that supply shortfalls of battery grade 4N+ HPA used in lithium-ion battery separators is likely and that the investment Altech Austrralia is an important first step in a longer-term strategy to service the European market with 4N HPA.

http://youbisheng.de/wp/2019/07/17/youbisheng-green-paper-ag-optionsvertrag-zum-erwerb-von-bis-zu-49-der-anteile-der-altech-chemicals-australia-pty-ltd-hpa-projekt/