FYI ASX Logo

FYI Resources Ltd Limited

ASX:FYI

Last Price:

$0.170

Our Investment Summary

Date of
Initial Coverage

19-Jan-21

Initial
Entry Price

$0.200

Returns from
Initial Entry

-15%



Investment Memo: FYI Resources Ltd (ASX:FYI) - LIVE

Opened: 01-Jul-2022

Shares Held at Open: 1,097,000


What does FYI do?

FYI Resources Ltd (ASX: FYI) is a specialist metals technology company, focusing on the key battery metal input High Purity Alumina (HPA). FYI utilises a new production process that is cleaner, purer, and much less expensive than conventional methods. FYI is partnered by leading global alumina company Alcoa, with a binding agreement through to commercialisation.

What is the macro theme?

The market demand for HPA is tipped to more than treble from 2021 levels by 2028, largely driven by greater demand for lithium-ion batteries as automakers secure critical inputs for electric vehicles (EVs) mass production.

Why did we invest in FYI?

Funded through to commercialisation

FYI has a binding joint venture agreement with Alcoa that essentially provides a complete pathway to commercialisation of its HPA technology. FYI retains a 35% interest and Alcoa funds US$243M in development costs. Subject to the technology continuing to tick Alcoa’s ‘boxes’, first production is poised for 2024, which would make it the first-to-market of any of the new kaolin-based processes. We can’t overstate the importance of Alcoa, considering its substantial R&D resources, operating experience, long-established marketing and industry relationships, and global reputation – alongside its large balance sheet. Indeed, we think project financing will be a considerable (even insurmountable) hurdle for many of FYI’s peers, whereas FYI is effectively free-carried through to production.

Favourable market dynamics

The HPA market is expected to move into deficit in 2024, coinciding with full scale production of FYI’s first plant facility. With the cost of FYI’s HPA output expected to be under half of the current conventional method (that delivers most of the current HPA supply), the opportunity to substantially disrupt this industry remains on the cards.

Positive ESG headwinds

We back FYI’s ESG-centric focus, with its process set to replace the current and prevalent more expensive, energy intensive and polluting method. We think this will appeal to battery manufacturers and automotive companies as key customers, as well as larger institutional investors.

What do we expect FYI to deliver in 2022?

Objective #1: Commission demonstration plant

  • Ultimately the plan is to have full-scale production by 2025. Alcoa effectively handles the ~US$250M funding required, provided FYI’s technology successfully proves itself over several phases. This has already been demonstrated at the pilot plant scale. 
  • Subject to engineering, we expect Alcoa and FYI to greenlight the construction of a demonstration plant through funding US$50M – producing market demonstration and assessment volumes up to 1ktpa HPA.  
  • Allowing 6-12 months for construction, we would be looking at first HPA production sometime in 2H 2023.

Milestones

Complete pilot plant trials

Front end engineering design – progress update

Front end engineering design – final report

Greenlight Phase 2, Alcoa funds US$50m – December 2022

Appoint lead project engineer

Commence construction

Complete construction

Maiden production in 2023

Objective #2: Progress FEED for the full-scale plant

  • In parallel with the demo plant progressing, FYI and Alcoa will advance front-end engineering and design (FEED) for the full-scale, 8-10 ktpa plant.  
  • Subject to satisfactory demo plant performance, this will be the precursor for the Second Investment Decision to proceed to commercialisation. We expect that the FEED will commence before year end.

Milestones

Front end engineering design – progress update

Front end engineering design – final report

Appointment of lead project engineer

Greenlight Phase 3, Alcoa funds US$200M

Objective #3: Secure first offtake agreement

As projects become further de-risked, potential customers become increasingly interested in securing output. We think that sufficient progress can be made in 1H22 such that multiple customer offtake MOUs and marketing relationships can be delivered in 2H22.

Milestones

Enter into first MOU offtake agreement

What could go wrong?

Financing risk

The commercialisation of FYI’s technology currently hinges on Alcoa funding, which in turn hinges on both parties progressing through three phases of development, as outlined in their Binding Agreement entered in September 2021. There is no guarantee that both parties will proceed across all stages, which would result in FYI requiring to raise substantial funds for project financing, which would almost certainly lead to a market sell off.

Technical risk

FYI’s process flowsheet and technology has been proven in the lab and on a pilot plant level, but has yet to be tested at scale. The demonstration plant, followed by the full plant facility, will test this. There is no guarantee that FYI’s technology meets Alcoa’s requirements to progress through these stages.

Market dynamics

FYI’s technology is new and seeks to replace the current conventional method (hydrolysis of aluminium alkoxide, a process that has not been substantially changed since the 1880’s). However, there could be yet another new technology that emerges that proves superior or more popular, which would be detrimental to FYI’s business. Furthermore, there could be unforeseen changes to the HPA market that could alter demand, impacting the viability of FYI’s project.

Project timeline

The timeline for first production from the full scale plant is 2025. However, the scope for timeline slippage is real, given logistical constraints and supply challenges not accounted for. It is also not uncommon for joint venture partners to ‘move at different paces’, which would impact the timetable.

What is our investment plan?

We first invested in FYI at 20c and then increased our position at 50c and 44.4c. 

In line with our standard investment strategy for small cap investments we de-risked around 17% of our FYI Total Holdings in the lead up to the Alcoa JV catalyst.

We still maintain around 83% of our Total Holdings in FYI and intend to hold the majority of this position until the Alcoa US$50M funding decision – expected in December this year. 

If the share-price runs up in the lead up to this decision we will sell up to an additional 20% of our Total Holdings.

We’ll re-evaluate our investment plan after the Alcoa funding decision.

General updates from FYI

Managing Director purchases shares off market [18-Aug-2022]

Disclosure: The authors of this memo and owners of Wise-Owl, S3 Consortium Pty Ltd, and associated entities, own 1,097,000 FYI shares at the time of publishing. S3 Consortium Pty Ltd has been engaged by FYI to share our commentary on the progress of our investment in FYI over time.


Investment Milestones for FYI

✅ Initial Investment: @20c
✅ Top Slice
✅ Free Carry
✅ Initial Investment: @50c
🔲 Free Carry
✅ Initial Investment: @44c
🔲 Free Carry
🔲 Take Profit
✅ Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
✅ 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years


More positive results for HPA-doped anode coatings

ASX:FYI Oct 04, 2022 Announcement

Investment Memo: FYI IM-2022


Our Wise-Owl critical metals Investment, FYI Resources (ASX:FYI) is progressing an innovative high purity alumina (HPA) project that could transform the industry, making it much cleaner and cheaper to produce.

The company continues to progress its joint venture with leading global aluminium player Alcoa for mass production of HPA, with the partners now working on engineering details for a demonstration plant to be based in WA.

On the application and marketing side, FYI and graphite company Ecograf (ASX:EGR) are working together on an anode coatings development program - essentially determining if their activities combined can further enhance performance of lithium ion batteries through ‘doping’ Ecograf’s spherical graphite with FYI’s 4N (ie 99.99% pure) HPA. Earlier today, the companies reported further positive results from the program, with the electrochemical performance in lithium-ion coin cells in excess of 110 continuous cycles achieving near theoretical irreversible capacity and outperformed standard industry materials. In addition, more encouraging results from the application FYI HPA being applied to the polyolefin separators showed a further improvement of 7.94 mAh/g reversible capacity.

This is interesting as polyolefin separators composed of polyethylene and polypropylene are the separators of choice in commercial lithium-ion batteries - being able to provide superior separators could open further markets and deliver higher margins for both FYI and Ecograf.

Up next for FYI, we’re keen to see an update on how the Alcoa joint venture is progressing, with Stage 2 funding decision looming in December.


Engineering Services Provider appointed for HPA Project

ASX:FYI Aug 23, 2022 Announcement

Investment Memo: FYI IM-2022
Objective 1: Commission demonstration plant


Our Wise-Owl critical metals Investment, FYI Resources (ASX:FYI) is progressing an innovative high purity alumina (HPA) project that could revolutionise the industry.

FYI has partnered with the Australian subsidiary of the leading global aluminium producer, the +$10B capped Alcoa, to develop the HPA project via a joint venture (65% Alcoa : 35% FYI).

The project aims to produce HPA that is purer and substantially cheaper than the current predominant process, and leaves a much smaller environmental footprint.

The JV is currently developing a demonstration plant in WA which will produce up to 240 tpa HPA.

Earlier today, FYI announced that Hatch Engineering was awarded the engineering services contract to support work for the demonstration plant.

With over 70 offices around the world, Hatch is a leading, global multidisciplinary management, engineering and development consultancy with extensive experience in critical minerals.

The Hatch appointment fits in with the main objective we’d like to see FYI deliver in 2022 — commissioning the demonstration plant. The key catalyst for this will come in December with the $50M funding decision by Alcoa.

While we are not privy to Alcoa’s internal discussions regarding its funding decision, there are positive indications of its continued commitment to the project. We note that Alcoa did mention the HPA project in its latest quarterly presentation and commentary.

We also take confidence in seeing FYI management increase their own holdings — managing director Roland Hill recently acquired $190k of shares at a premium through an off-market transaction.

For more on our analysis on FYI Resources, here is a link to our FYI Investment memo.


Managing Director purchases shares off market

ASX:FYI Aug 18, 2022 Announcement

Investment Memo: FYI IM-2022


Yesterday we saw some direct buying off market from FYI’s Managing Director Roland Hill.

The purchase was for $190k at an average price of 19c per share, a premium to the current market price for FYI.

FYI’s share price is down ~50% from where it was earlier in the year at ~40c per share.

With the share price down so much, we always like it when the company directors step up and start to buy shares on or off market. Director buying signals to us that the people closest to the company clearly see some value in topping up their shareholdings.

To see all of the key objectives we want to see FYI achieve in 2022, the reasons why we continue to hold FYI in our portfolio and the key risks to our Investment thesis, check out our 2022 FYI Investment Memo here.


Commences next phase of HPA project development with Alcoa

ASX:FYI Jun 02, 2022 Announcement


Investment Memo: FYI 2022

Objective #1: Commission demonstration plant


Our Wise-Owl specialist batteries metal tech investment, FYI Resources (ASX:FYI) has announced the completion of the first of three development phases for its high purity alumina (HPA) project.

The HPA project is a joint venture with the Australian subsidiary of the +$10B capped Alcoa — a leading global aluminium producer (65% Alcoa : 35% FYI). The project aims to produce HPA that is purer and substantially cheaper than the current predominant process, and leaves a much smaller environmental footprint.

The JV now progresses to Phase 2, the development of a demonstration plant in WA which will produce up to 240 tpa HPA. Whilst this is less than the initial 1,000tpa production goal, the quantity isn’t the important aspect.

What matters is seeing FYI’s technology scale up from the pilot plant level. If that can be achieve, the JV will likely progress to the third and final phase — the development of a 9,000 tpa production facility.

HPA is drawing heightened attention as a key component for separators in electric vehicles batteries and demand for HPA is soaring as consumers switch from gas guzzlers to EVs, with the market expected to tip into a supply deficit from around 2024.

Today’s news fits in with the main objective we want to see FYI deliver in 2022 — to commission the demonstration plant. The key catalyst for this will be Alcoa signing off on the demonstration plant funding, which is expected in December 2022.


High purity alumina added to government's critical mineral list

ASX:FYI Mar 17, 2022


Yesterday the Australian federal government updated its “critical minerals strategy” documents and added two new minerals to the list - silica and high purity alumina.

The list of now 26 critical minerals are made up of those that are needed to manufacture high tech devices, military applications and, importantly, those needed to aid the transition towards a low carbon economy.

High purity alumina has several different industrial applications from glass to LED lights, more recently however it is starting to be considered a “critical” mineral due to its use in high energy density batteries such as those used in electric vehicles.

Our battery metals investment FYI is aiming to be the first to market to deliver high purity alumina using a new kaolin clay based process that is cleaner, purer, and much less expensive than traditional methods of alumina production. It is doing this via a partnership with US$14 billion global alumina giant, Alcoa.

With ESG considerations becoming more and more important and high purity alumina now recognised as a “critical mineral” we expect the market to become more interested in FYI’s tech.


Latest appointment further bolsters team

ASX:FYI Mar 03, 2022


On Thursday, our high purity alumina (HPA) investment FYI added an impressive industry veteran to their team.

Mr. Phil Thick has been appointed as a strategic advisor to FYI’s Board, having previously held senior positions at Tianqi Lithium, Shell Australia, Coogee Chemicals and Alcoa Australia. His impressive track record includes instrumental roles in several developments within battery and energy related industries, which certainly fit FYI’s downstream and value-add battery mineral business.

We like this addition to the team, and suspect that Phil’s previous role at Alcoa Australia can only benefit the FYI- Alcoa joint venture.