Hill End Gold has released robust metrics for its Yendon high purity alumina (HPA) project that look better than the numbers released by more advanced rival Altech Chemicals.
The company (ASX:HEG) has released a pre-feasibility study that shows it can produce 8000 tonnes of HPA each year that would deliver a 70 per cent margin and earnings of $US133 million ($175.8 million) each year at the conservative price of $US25,200 per tonne.
By comparison, Altech (ASX:ATC) has previously forecast it will produce 4500 tonnes each year, which would deliver a 63 per cent margin and earnings of $US76 million each year at a price of $US27,000 per tonne.
“On the basis of a straight one-to-one comparison, you’d have to say we would look better than the published numbers that Altech has on almost any normal financial metric that you’d use,” managing director Martin McFarlane told Stockhead.
Hill End’s share price climbed over 12 per cent to an intra-day high of 9.3c on Thursday morning.
HPA is a high-value material needed for lithium-ion battery components and synthetic sapphire used in LED lights, semiconductor wafers and scratch-resistant smartphone glass.
Hill End’s Yendon project is estimated to have a net present value (NPV) of $US692 million and an internal rate of return (IRR) of 34 per cent, with a payback period of 4.1 years.
Mr McFarlane said the metrics are at the “better end” of Hill End’s expectations.
“We think they are very positive and certainly they give us the clear direction for the future to pursue this project,” he said.
Altech’s numbers, meanwhile, show an NPV of $505 million and IRR of 22 per cent, with a slightly shorter payback period of 3.9 years.
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Misunderstood market
HPA is not a widely understood commodity and there are currently only four ASX-listed players.
HPA is currently a small global market of about 25,000 tonnes annually.
But that is tipped to grow to around 48,000 tonnes by 2025 and 86,000 tonnes by 2030.
Altech is the most advanced player after having received the manufacturing licence it needs for its HPA plant under construction in Johor, Malaysia.
“If you said to investors we’re a gold company and we issued results that showed these sorts of financial returns and some metrics around grams per tonne and total tonnes, people would understand it straight away,” Mr McFarlane said.
“But because it’s HPA no one really has an idea whether $25,000 a tonne for HPA is a good price or a low price.
“So collectively as an industry we still have a fair bit of education to do with the market to make sure they understand what it all means, and I think that’s something we all have to do.”
The price of 99.99 per cent grade HPA ranges between $US25,000 and $US40,000 per tonne depending on the local market and the particulars of the end product.
“So we’ve gone conservative, at the bottom end of the range,” Mr McFarlane explained.
“We’ve done that deliberately so that we know it’s a price that’s achievable. I think the thing that’s important is the margin – we’ve got nearly a 70 per cent margin on our cost.
“So that is obviously a substantial margin. That means the price that we’re getting is very good relative to our costs and that’s important.”
But Hill End believes it could fetch a much better price given that the quality of its product is higher.
The company can produce a product that is better than 99.99 per cent HPA, but just shy of 99.999 per cent HPA.
“There is the prospect that when we finally start delivering some product from the plant that we could achieve higher prices than we’ve assumed in the PFS just because of the fact that we produce a better grade than the minimum that is required,” Mr McFarlane said.