Equity boost followed by debt funding news

24 Aug 2016

Last month, we were pleased with developments on the equity side of our business, raising AU$10 million in an oversubscribed share placement, which welcomed several high-quality investment institutions onto our share register.

This month, we’re just as excited about developments on the debt funding side of our business.

Funding projects takes a lot of very thorough discussion and due diligence with very experienced financiers who have to see a lot of proposals, and you can’t expect them to give you the “green light” on the spot.

You’ve got to convince them of the merits of your case.

We find that an enjoyable process because we believe wholeheartedly that our high purity alumina (HPA) project is a winner.

HPA has a major role to play in meeting the growing world demand for a genuinely high-tech raw material to produce exciting applications such as synthetic sapphire glass.

It also has a role in lithium-ion batteries, which are an integral part of the coming electric vehicle revolution, as well as in home batteries and power storage for the renewable energy sector.

We enjoy talking to potential investors and financiers about our project, and it’s very gratifying when they like the story too.

Since January 2016 we’ve been working with German government-owned KfW IPEX-Bank on structuring the project debt finance for our HPA project. At the same time, we appointed German engineering group M+W Group (M+W) as engineering, procurement and construction (EPC) contractor for the project to manage detailed design and construction.

In June, M+W started talking to German export credit agency Euler Hermes about increasing the proposed export credit cover (ECA) contract value of the project from the originally contemplated amount of US$40 million (AU$52.6 million) to US$60 million ($AU78.9 million).

The representation was based on the significant German and European project content (the plant, equipment and services) and overall benefit of the project to German industry. This month, Euler Hermes agreed to increase the ECA contract value to US$60 million.

On the back of this, we have reduced the targeted amount for the remaining uncovered debt portion from US$20 million (AU$26.3 million) to US$10 million (AU$13.1 million). This effectively increases the targeted debt financing for the HPA project from US$60 million to US$70 million (AU$92.1 million).

But where everything really falls into place for us is that, as a result of these negotiations, KfW IPEX-Bank has proposed a simple and cost-effective “sole lender” debt structure, by which it provides the entire US$70 million of project debt exclusively (subject to ongoing due diligence and respective loan approval).

Having a single project lender will significantly simplify and streamline financing, documentation and securitisation. And because the ECA cover supports a lower interest rate of project finance debt, increasing the ECA cover amount to US$60 million results in a lower overall cost of debt than the debt funding structure we originally considered.

The equity component of the HPA project will be finalised upon the completion of the detailed design phase. But we’ve completed two very satisfying months of work in the critical financing work on both sides of the balance sheet.