The case for Alcore

The price of aluminium is at record highs, as is aluminium fluoride, at around USD$1800/tonne. There are 4 smelters in Australia. These smelters are making record profits and are having trouble sourcing aluminium fluoride from China, their traditional (and cheapest) supplier. Tomago had a critical shortage of aluminium fluoride in late 2021. Aluminium fluoride is essential - the smelter cannot operate without it. Why would these smelters risk shutting down due to the lack of a critical feedstock when there is an Australian company who only needs $20m to start producing? I have worried about funding of the commercial plant for years. Once the pilot plant is proven successful (in the next month or two hopefully), why wouldn't these smelters (or the government on behalf of them) cough up a piddly $20m to guarantee supply of an essential feedstock, to safeguard the industry and the jobs? I am not losing sleep over funding or major dilution any more.

And I almost forgot. In addition to supplying an essential feedstock, ABX can also clean up the smelter waste dross, which they are not allowed to dump. It is a critical issue for them. Some of them are sitting on 30 years of accumulated dross and paying more for storing this toxic waste every year. ABX can take that dross and use it as a feedstock when producing aluminium fluoride.

I said last month I was invested in ABX for Alcore. What could Alcore be worth? If the pilot plant works and the smelters sign off on it (and fund it, with grants or even with a loan at 5%), ABX will build a production plant within 12 months. at a cost of $15-20m. It is expected to make a profit of $10m/yr on production of 10,000 tonnes/yr. Valuation $100m. Once that production plant is proven, it can simply be replicated. Hopefully using Big 4 bank equipment finance facilities. The 4 Australian smelters import about 30,000 tonnes of aluminium fluoride per year, so ABX would need to build 3 production plants to satisfy that demand, making a profit of $30m/yr. Valuation $300m. Why stop there. Rio Tinto has interests in smelters overseas most of which have a problem with their waste dross. We take the dross if they buy our aluminium fluoride. 10 production plants = $100m/yr profit and a $1bn valuation. There is a viable path to a significant valuation for Alcore, and I am only using a PE of 10.

Alcore is valued at virtually nothing by the market. I'm not trying to say it should be valued at $1b right now. But the pilot plant is due for completion within a month or two after 4 years of work, much of it ground breaking. No one has ever achieved what ABX is on the cusp of achieving, not even billion dollar multinationals who had every incentive to succeed. The market has apparently written off any chance of success. And I am certainly not saying that success is guaranteed. But nor is failure. You can buy ABX today for its Binjour bauxite deposit or its Tasmanian rare earths deposit and you will get a share of Alcore for free. And I think it might turn out to be the most valuable asset of all. But when you're getting it for free, you don't even have to care too much if I'm wrong! For blue sky potential on the ASX, I don't think there's much to beat ABX right now.