Barry FitzGerald writes his legendary Garimpeiro resources column weekly for Stockhead:
It could be time to revisit the high purity alumina (HPA) project developers.
Share price wise, they have been doing it tough in recent months despite HPA prices moving higher on a demand outlook that looks better by the day.
Robust demand for HPA from the sapphire glass market (LED lights and semiconductors) and the fast-emerging lithium-ion battery separator/coating market has driven HPA prices to $US40/kg recently.
The price is well above the $US20-$US30/kg long-term prices the ASX-listed proponents of HPA projects have been plugging in to the financial modelling of their HPA projects.
That augurs well for their ability to get their projects in to production.
But their share prices have languished nevertheless.
The apparent disconnect between the rosy HPA outlook and the share price performance of the HPA stocks is seen to be a response to over-supply concerns dragging lithium prices lower.
The four main HPA stocks on the ASX – Altech (ATC, 14c), Hill End (HEG, 7.7c), Collerina (CLL, 12c) and FYI Resources (FYI, 9.9C) – are trading lower than they were six month ago, despite the ongoing strength of the HPA market.
Caught in the lithium down-draught
They look to have been caught in the lithium down-draught simply because HPA is used in lithium-ion batteries as an anode/cathode separator – and increasingly as a coating – to stop them catching fire.
So HPA stocks should come down as well.
But the down-draught ignores the reality that HPA is not moving into over-supply anytime soon.
Leading commodity forecaster CRU expects continued strong industry growth from HPA’s traditional markets, as well as the positive impact on lithium-ion batteries from the global uptake in electric vehicles.
It has said all of the projects proposed by ASX-listed players, and others, will cover short-term demand, but that more projects or ramp-up plans are required to meet the growth expected towards 2025.
The ASX-listed HPA stocks have been campaigning hard to alert investors to the apparent disconnect between the outlook for HPA and their share price performances.
They have been alerting their investors to the positive feedback they have been receiving recently for their HPA plans at battery conferences and specialist trade affairs across the key markets of Asia and the US.
Spreading the good news
As reported by Stockhead on September 26, Hill End was keen to spread the good news on its return from its Chinese and US marketing efforts.
It reported back that lithium battery separator manufacturers were investing to increase production by five to 10 times over the next five years.
Iggy Tan’s Altech has also been reporting back to investors on the building buzz around HPA and its growing applications.
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“It was apparent that HPA is now increasingly being directly applied as an outer coating layer onto the anode and cathode materials used in lithium-ion batteries, in addition to being applied as a coating on polymer separator sheets,’’ Altech said.
“The direct application of HPA as a coating on lithium-ion battery anode and cathode materials is an exciting development that is likely to represent an additional market opportunity and demand driver for HPA.’’
Tan noted that several Japanese and South Korean buyers confirmed that HPA pricing – it remains an opaque market – was about $US40/kg.
He noted that Altech had used $US27/kg in its financial modelling. If the current price is applied, the group’s HPA project would generate earnings of $US133m a year at a nameplate capacity of 4,500tpa.
At its current share price, Altech is valued at about $A85m.
Compare that to the earnings potential of its project, and it’s easy to understand why the company – and its ASX HPA peers – are keen to get the message out that there is mismatch between the recent performance of HPA shares, and the HPA market itself.