Here’s why Altech has lucrative opportunities in the battery sector

Special Report: Altech’s push to commercialise sodium-alumina solid state batteries grant is a lucrative opportunity to meet the surge in demand for grid battery storage.

Along with its efforts to address the challenges and shortfalls of lithium-ion batteries, which could allow it to make inroads into the EV lithium-ion battery market, financial services firm Arrowhead Business and Investment Decisions believes the fair market value of its shares should range between 33c to 74c using the net present value methodology.

This is significantly higher than Altech Batteries’ (ASX:ATC) current share price of 10.5c and highlights just how room Arrowhead believes that company has to grow into.

So just what’s behind this belief?

Chasing the burgeoning grid storage market

First of the rank is the company’s CERENERGY® sodium-alumina solid state battery project that is specially designed to meet the needs of the grid energy storage market, which is projected to grow in value from US$4.4bn last year to US$15.1bn by 2027.

CERENERGY® technology uses common table salt and ceramic solid-state technology to reduce costs by up to 50% compared to regular lithium-ion batteries.

Other advantages include being fire and explosion-proof, the ability to operate in a wide range of temperatures, as well as having life spans of more than 15 years.

The company’s joint venture with applied research organisation Fraunhofer-Gesellschaft currently seeks to commercialise the 100 megawatt hour production facility at the Schwarze Pumpe Industrial Park in Saxony, Germany, on land owned by Altech.

Fraunhofer has already tested the world’s largest CERENERGY® batteries in terms of capacity in stationary battery modules.

Arrowhead noted that while Altech’s batteries are not suitable for applications where very high power is required in a short period of time – such as for EVs, they are eminently suitable as an alternative solution for the stationary storage market or the long-duration energy sector.

Tapping the EV market

Altech is also angling to take a piece of the EV pie with its Silumina Anodes^TM product, which incorporates high-purity alumina coated silicon and graphite into the anode of lithium-ion batteries.

With lithium-ion battery capacity expected to grow at a compound annual growth rate of 26% over 2020-25, this represents a fast-growing market for the company, one in which its ability to achieve 30% higher energy capacity by incorporating silicon into the anode would be a significant advantage.

The magic ingredient is the use of Altech’s innovative proprietary HPA coating technology with regular battery-grade graphite to produce a lithium-ion battery containing a composite graphite/silicon anode, which addresses the issues faced by incorporating silicon into anodes – namely its tendency to balloon up to 300% in volume on each charge. The advantage with silicon is that it has 10 times the capacity of graphite.

Altech has licensed its HPA technology to 75%-owned subsidiary Altech Industries Germany to develop a 10,000tpa silicon/graphite alumina coating plant in Saxony to supply its Silumina Anodes TM product to the European EV market.

The Pre-Feasibility Study has outlined project NPV and IRR of US$507m and 40% respectively from the HPA coating plant.

Capex is a palatable US$95m with a payback period of 3.1 years while annual revenue is expected to be US$185m.

Timelines

Altech expects the DFS for the CERENERGY® plant to be completed in the second half of this year following which it will move to front end engineering, funding including grants, and the project approval process.

The tentative timeline could be between 6-12 months, subject to successful funding and construction which might take circa 18 months for completion.

Meanwhile, the DFS for the Silumina Anodes^TM plant is also expected to be completed in the second half of 2023, though the pilot plant should be operational at that point to provide qualification samples to potential buyers.

It will also move the project to FEED, funding including grants, and the project approval process with similar timelines to CERENERGY®.

Valuation

Arrowhead used the following assumptions in its valuation:

In the forecast period of 2023E-2049E, production is assumed to begin in 2026 in the low case and 2025 in the high case;
In the forecast period of 2023E-2049E, the assumptions on CERENERGY® battery project has been made prior to the Bankable Feasibility Study;
In the forecast period of 2023E-2049E, the production capacity of CERENERGY® battery project is taken as 100 MWh though this does not consider the construction of a gigawatt-scale factory which will drastically alter the valuation. Similarly, the production capacity of Silumina AnodeTM project has been considered as 10 ktpa throughout the forecasted period;
In the forecast period of 2023E-2049E, post market research, the average selling price of CERENERGY® battery project has been considered as 900 EUR/KWh in High Case and 700 EUR/KWh in Low Case. Also, the cost of CERENERGY® battery has been taken as 40-50% cheaper than Li-ion batteries;
In the forecast period of 2023E-2049E, the capacity utilization has been kept constant at 100%; and
The capital raising of all the project is assumed to be completed by FY 2023.

Using these assumptions and other factors such as a market return of 9.7%, a 17.1% cost of equity and 6.3% cost of debt, Arrowhead assessed Altech shares to have fair market value of between $467.5m and $1,051.3m.

This article was developed in collaboration with Altech Batteries, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.