Barry FitzGerald writes his legendary Garimpeiro resources column weekly for Stockhead:

Iggy Tan’s Altech Chemicals is off and running to become the first producer of high purity alumina (HPA) among the ASX-listed quartet which have hitched their future to the boom material.

Drawing on last month’s $20 million equity raising, Altech (ASX:ATC) has begun early construction works at its HPA plant site in Johor, Malaysia, which will draw its feedstock from an aluminium-bearing kaolin mine to be developed in Western Australia.

The start to early construction works comes ahead of the financing package for Altech’s HPA plans being bedded down. But that’s exactly the point.

“With these sort of projects it’s all about momentum,” Tan told this column. “It’s all about getting up and getting going.

“We want to maintain project momentum and that’s the reason we raised the equity last month, to get early construction started.”

Tan knows all about the importance of project momentum.

It was his push and shove that established Galaxy Resources (ASX:GXY) as a leading lithium well before the lithium-ion battery boom gripped the market.

Galaxy is now a $1.2 billion company.

But when Tan left the company in 2013 the boom had yet to arrive and things got a bit tough, prompting Tan’s exit and his arrival at Altech a year later in another trail-blazing role, this time in the HPA space.

Altech Chemicals shares (ASX:ATC) over the past year
Altech Chemicals shares (ASX:ATC) over the past year

Financing for Altech’s plan to become a 4,500 tonnes per annum HPA producer is coming together and has export credit finance from Germany’s KfW IPEX-Bank at its core. It’s said to be the best debt in the world.

But facing six months or so for all of the financing plans to fall in to place, Tan decided to get moving now with the early construction works.

His momentum focus comes at an interesting time for the ASX-listed HPA stocks in general. Other key HPA stocks are Collerina (ASX:CLL), Hill End (ASX:HEG) and FYI Resources (ASX:FYI).

>> Read Stockhead’s quick guide to High Purity Alumina

Because HPA is enjoying high demand growth as a thermal separator to prevent fires inside lithium-ion batteries, it is seen by many as purely a battery material.

That was a positive until the heat came out of the lithium stocks earlier this year on forecasts that supply would soon swamp demand. It has become a negative by association for HPA ever since, in the minds of investors anyway.

The main uses of HPA

The reality is that the biggest use of HPA remains in LED lights and in the production of scratch-resistant glass.

More importantly, unlike lithium, HPA is forecast to be in short supply for years to come.

HPA is not a big-tonnage market, with global demand of about 30,000 tonnes in 2017. But industry forecasters predict double-digit compound growth to as much as 122,000tpa by 2025.

That means multiple HPA plants like Altech’s Johor baby will be needed.

The boom outlook is being reflected in prices for 99.99 per cent HPA product. While most of the HPA project aspirants assume long-term prices of less than $US30/kg for their projects, recent pricing in Japan is $US40/kg.

HPA pricing

Not unlike the lithium market, pricing for HPA is opaque. But unlike the lithium market, prices have remained strong.

“Our view is that we are going to see very strong demand in coming years,” Tan said. “The market is growing by 20 times the size of our plant so there is no fight for market share.”

He might as well have added that it’s a different outlook for the lithium producers where the supply window of opportunity is fast closing.

Altech plugged in a long-term price of $US26.90/kg for HPA in its investment study in to its integrated project.

The project is the first of the “disruptive’’ projects being brought forward in that its feedstock is kaolin based compared with the world’s existing production which starts out with finished aluminium metal.

It means potentially much lower operating costs.

Altech’s investment study forecast production costs of $US9.90/kg, indicating a gross margin of 63 per cent on the long-term price estimate, and an annual earnings capability of $US76 million.

Altech last traded at 16.5c for a market cap of $87 million.