The boss of the junior that is expected to be the first ASX-listed high purity alumina (HPA) producer says it’s just too expensive to process its product in Australia.

Altech Chemicals (ASX:ATC) is building a 4500-tonne-per-annum HPA plant in the Malaysian city of Johor because it’s much cheaper.

“Today if you want to compete globally you have to be the lowest cost producer — we’re a global market and unfortunately it is quite expensive,” managing director Iggy Tan told Stockhead at the RIU Explorers Conference in Fremantle, WA last week.

If Altech were to build its plant in WA, where its kaolin deposit that will feed the plant is located, it would be up for hydrochloric acid costs of nearly three times and electricity costs of more than double what it costs in Malaysia.

Kaolin is a clay mineral and part of the industrial minerals group.

It is used to make HPA — a base material for making lithium-ion battery components, LED lights, smartphone screens and surgical tools.

“If I had to build a plant in Western Australia my hydrochloric acid might be worth $350 a tonne, where in Malaysia it’s probably $120,” Mr Tan explained.

“My electricity instead of 25 to 27c a kilowatt, in Malaysia it’s 12c a kilowatt. Labour cost is a third.

“More importantly the Malaysian government also provides a tax incentive and we have a five to 10-year tax free window for building that plant in Malaysia.”

The rapidly growing HPA market is predicted to jump from around 30,000 tonnes each year at the moment to more 90,000 tonnes a year by 2025.

That is 20 times what Altech plans to produce each year at full production.

“So you can see the growth of high purity alumina and today we’re just gradually understanding high purity alumina and its demand,” Mr Tan said.

“It’s much the same as the lithium thematic about 10 years ago.”

One of HPA’s fastest growing applications is coating the separators that keep apart the cathode and anode electrodes in a lithium battery — to prevent explosions.

But it is also the reason you can drill your iPhone screen and it won’t scratch or crack.

Cheaper HPA

When Altech comes into production it expects to deliver its product for a third to half less than its competitors, using tech that has been around since the 1900s.

HPA producers already in production have to buy aluminium – which is pricey – dissolve it and then convert it back to alumina.

Altech’s process doesn’t require aluminium, it uses hydrochloric acid to dissolve the alumina from the kaolin and then recrystalise it and purify it to 99.99 per cent HPA.

That purity of HPA sells for around $US40 ($56) a kilo and Altech will be producing it for about $US10 a kilo, according to Mr Tan.

“Our process uses a totally different technology, very disruptive, and we think we will be about a third or half the cost of the current production,” Mr Tan said.

“Our gross margin is around 75 per cent.”

Altech has secured patents for its process and has cautioned other HPA players using kaolin to be careful not to breach its patents.

The other HPA players are FYI Resources (ASX:FYI), Pure Alumina (ASX:PUA) (formerly Hill End Gold), Alpha HPA (ASX:A4N) (formerly Collerina Cobalt), and Andromeda Metals (ASX:ADN).

“There are now other companies that are doing the same thing from kaolin to alumina,” Mr Tan said.

“We welcome that because you need to create a sector and if the demand is there, we need more high purity alumina capacity coming on.

“Obviously we’re first in the game, we have seven to nine patents in play. It’s essentially our process and other players just need to be wary that we have a patent in place and they have to deal with that.”

Altech has started construction on its HPA plant in Johor despite not having yet finalised the remaining $US90m of mezzanine debt it needs.

The company has so far secured $US190m from German government-owned KfW IPEX-Bank but that won’t be released until the company secures the rest of the cash.

It has received an indicative term sheet from a “global bank” and is confident it won’t have any problems completing the funding process.

“They’ve just completed the technical part of the due diligence, that’s been very successful — it’s a positive report, and now they’re moving towards the internal approval process,” Mr Tan said.

“We decided to start the construction process first. Last year we raised $21m and that will fund the stage one part of the construction of the plant.”