This is my last post on the FYI thread for a while and I'll continue to talk to management offline as well as a few other larger holders as frankly this thread has no discussion about the project or HPA as a sector. Aside from a few German's with one making no sense at all and a few who do comment here and there there's no research at all provided from elsewhere. Hopefully when the interest in FYI picks up we get some new posters sharing research and their thoughts around the sector and FYI and get the thread informative.
So here's my final thoughts on things for now.
A4N announced their DFS today for those that don't know so we now have the DFS numbers for A4N, ATC and FYI.
Current state of play as follows between the 3 at a very basic level.
Pre DFS for FYI and A4N - (market cap as at 11/2/20)
ATC capex US$298mill, opex $8,550, output 4,500tpa - DFS Complete. Market cap 70m
FYI capex US$179mill, opex $6,467, output 8,000tpa - These are PFS Numbers, DFS imminent. Market cap 11m
A4N capex US$149mill, opex $5,123, output 10,200tpa
- These are PFS numbers, DFS imminent.
Market cap 154m
Post DFS for FYI and A4N - (market cap as at 17/3/2020)
ATC capex US$298mill, opex $8,550, output 4,500tpa - Market cap 44m
(ATC no change as these were already final numbers) MC down just under 38%
FYI capex US$189mill, opex $6,217, output 8,000tpa - Market cap 9.5m (Capex up 10m OPEX down $250 per tonne)
A4N capex US$209mill, opex $5,940, output 10,000tpa
Market cap 88m (Capex up US60m nearly 30% Opex up 817 per tonne or 14%) MC down 43%
It is a credit to Roly and the team at FYI for the work they have done so far.
As I have said previously I believe FYI to be the best emerging HPA on the ASX. I think FYI and A4N will both be a success in their own ways and ATC who in my view rushed their way to where they are now are now at the point where their lack of thoroughness and poor strategy is causing them to hit a major roadblock.
At this point in time, FYI have a funding mechanism in place... A4N have no funding. You can argue about how good or bad the equity funding arrangement is for FYI but we have one and if it is used in the later stages like I think it will it's a very viable option and a fantastic achievement for a company with such a small market cap. Of course, this arrangement will work best in the later stages when hopefully the share price is multiples of where it is now (after offtakes etc). I believe this arrangement is far superior than the other alternative of a broker type arrangement.
And this first piece of the finance puzzle should prove to be a domino for the remaining pieces to fall into place.
I haven't thoroughly looked at the A4N DFS but at a quick glance there is no NPV or IRR for some reason quoted? Could be wrong on that but seems odd.
ATC seem to make an announcement every time someone sneezes in the company or some concrete is poured just for the sake of it. Go back over their announcements and its quite funny the reasons for some of the updates. The reality is their project economics are by far the worse and they have the added geographical risk in Malaysia. The tax benefit argument doesn't add up as whilst there are tax benefits producing and distributing in Malaysia, that's not the agreement with Mitsubishi. So import and export taxes will apply. They have poured a few slabs and built a few sheds and already want to build another plant in Germany when funding at this point in time is not easy. They have an offtake with Mitsubishi for 10 years of 100% of their HPA production at market rates. Sounds good, absolutely. But what is the price? Logic says HPA prices will go up as there won't be enough supply to meet demand but because the Aussie HPA emerging producers can produce for far less than the current overseas HPA plays what's to say Mitsubishi don't try to negotiate a lower cost knowing the margins that can be achieved? My point being how does a lender assess the risk of the project to provide funding? No money has exchanged hands here either and they are locked into this there is no diversified strategy and with that - diversified risk.
Both FYI and A4N have fantastic project economics.
Reading A4N's announcement the concern there is that 75% of their operating costs are variable. I'm not saying this is a bad thing, they could improve or they might be worse - but there is still some uncertainty there. It's not surprising though as they only recently decided on their location which was a really important part of their strategy. So there would still be significant work to happen to finalise some of the variable costs and possibly Capex.
We know the demand is there for HPA in the future and it's diversified uses from battery separator to LED's, scratch proof glass.... and the list goes on. Point being the market is well diversified so the potential offtakers are endless.... from a Panasonic.... to a BMW.... to a HPA trader...… you get the picture.
FYI have the benefit of other income stream opportunities also. High Purity Quartz is one of them and through the beneficiation at the mine site they can produce HPQ at around 98% purity. So it won't talk a lot of extra money to increase the purity of this and we will have a truck load of this that can be sold. Inert Silica is another income stream opportunity. These will only improve the project economics.
As I have said, my understanding is we have sent samples to some customers. Our number 1 (preferred customer) wants half our annual production and are exclusively talking to us. But we are not exclusive to them. They have requested a particular spec of HPA for their particular use and we are working to refine the HPA to provide to them for testing. All going well, they will likely form offtake and financing arrangements.
We have 3 MOU's. One is with Aco Korea, the other two I don't know as the other parties want to remain confidential at this point in time. But the company has said these are big names.
The pilot plat that FYI has built I have been told was the best decision we ever made. It allowed us to improve our flow sheet, ensure costings are accurate, enabled interested parties from Australian and overseas to visit the plant (28 over 1 week I believe), have the government come and look at what we are doing and it has provided proof of concept and is helping with our financing arrangements providing lenders with the confidence of our strategy.
Looking at other 'pilots' they look more like small scale bench tops in the garage type arrangements. If you try and find info on this with ATC it has all been outsources and there have been samples grades quoted but no where near as much transparency has been provided in comparison to FYI.
It is likely we will run the plant again to further refine our process.
Lastly, our Kaolin isn't the highest grade out there but it is perfect for the production of HPA hence why our Capex and Opex numbers are so good.
A lot of people simply look at the grade numbers (the 9's) and simply look at the higher the better. Yes this is somewhat true but the size and shape of the HPA is just as important depending on it's end use so this needs to be factored in as well as grade. FYI have both boxes ticked and we have the ability to achieve the desired grade and 'type' of HPA our end users are looking for - this is the key.
Management at FYI has said they are slowly and methodically been working through to get to where we are now. They didn't plan on building the pilot plant, but they did which meant timelines went out but these decisions will ensure we are a success in the future. It will ensure our costs don't blow out and it will ensure we will get finance on the right terms with the right customers.
I feel that after this complete hiatus on newflow for a few months that more regular updates should be forthcoming now.
I fully expect some naysayers to pick my post apart and welcome that with valid information that backs it up.
For all of the reasons above this is why you could do a lot worse than invest in FYI at a current market cap of under 10m given what it has achieve and what it is on the cusp of achieving, vs it's competitors and their relevant market caps.
GLTAH.
(20min delay)