New development schedule for High Purity Alumina project
This morning, our critical minerals and battery metals technology Investment FYI Resources (ASX:FYI) revealed its re-scoped and re-engineered development schedule for its HPA project. This is the first update since FYI resumed full control of the project following Alcoa’s withdrawal in February.
For those new to the story, HPA is short for High Purity Alumina, a high value product increasingly used in lithium ion batteries, as well as a key part of LEDs and scratch-resistant, sapphire glass screens. This market is experiencing strong growth, and is tipped to cross into a supply deficit within the next two years.
FYI aims to deliver HPA utilising a kaolin clay-based process, producing HPA at ~US$6000/t. The current primary supply for HPA uses a bauxite-based process developed in the late 1800’s, which is dirtier, produces lower purity HPA, and delivers its product at over 250% the cost of FYI’s process.
Under the new development schedule, FYI will first progress a small-scale production plant (SSP) prior to a full-scale commercial plant by incorporating a staged and scalable development approach. The SSP will be located within Battery Alley in Kwinana, Western Australia, and is essentially a more efficient, modular version of the demonstration plant that was previously planned, targeting ~1,000 tpa production. FYI is aiming to have detailed design execution before Christmas, leading to construction/ execution by May 2023 - here is what the new schedule looks like:
Besides validating the flow sheet for the main facility, the SSP will deliver high quality HPA for prospective customers for their supply chain qualification. This is important as it is a precursor to offtake agreements, which financiers will favour once it comes time for project financing of the main production facility. Once running, the SSP provides sufficient samples to over 25 potential tier-1 and tier-2 customers.
Our hope is that several offtake agreements will ensue once samples are delivered, underpinning financing for the HPA project to get into full production. Remember, the revised Definitive Feasibility Study illustrated robust project economics, with a NPV of US$1.1BN and a capital payback period of 3.2 years for the required US$202M CAPEX for the HPA project. At 9,000 tonnes per annum 4N HPA product, this translates to an annual earning stream averaging in excess of US$180M for the next 25 years from start up. That said, there are plenty of hurdles to cross to get here, but with today’s new project schedule, we can see FYI’s vision to deliver this.
Our big bet for FYI remains the same following today’s announcement, namely:
Our FYI Big Bet:
“We want to see FYI significantly re-rate by moving into High Purity Alumina (HPA) production and scaling its technology to other HPA projects”
NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our FYI Investment memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.
Next up
FYI will look to appoint an engineering service provider to undertake the final engineering work for the SSP. This will incorporate facility fabrication, installation and construction activities into the plan.
Once full equipment lists and final procurement quotes are received, FYI will determine capital and operating cost estimates for the SSP, likely sometime around September . This will determine how much funding is required to get the SSP up and running. With over $9M cash on hand as at 30 March 2023, FYI has sufficient funds for the project engineering phase, but will need to raise funds to further develop the SSP. FYI may be able to tap into several Federal and Western Australian State grants - especially given the ESG-friendly and Critical Minerals focus of FYI’s project - to assist with project capital.
