Ann: Video Interview with Managing Director, page-86

I've looked into FYI previously. Here are some comments.

• It's very capital intensive. Each $1.00 of CAPEX spend only contributes $2.70 of NPV. i.e. NPV is only 2.7x CAPEX.
• Payback is 3.6 years since the debt burden will be quite high relative to revenue.
• CAPEX is also very high relative to market cap. Currently 12x market cap.
  • So with CAPEX at AUD $271M and 30% equity component required that means AUD $81M is required as a condition of finance (30% requirement is written in the DFS). That's 3.6x the current market cap.
  • The problem is the company has negotiated a Convertible Note Facility for the equity component. Convertible note facilities generally work out badly for shareholders = massive dilution. Newsflow has to be strong for shareholders to have a chance.
• Project risk is also proportional to CAPEX. The more $$$ spent to get a project running, the more that can go wrong. Many shareholders learnt that from Lithium players.

By contrast, ADN's maximum cash requirement is 75% of AUD $28M or $21M. Our Market cap is 3.85 times the cash required to get the project up and running.

The after-tax NPV is AUD $511M (100%-basis), which works out to be 18.25 times the $28M required to get the project running. So every $1.00 invested contributes $18.25 to NPV. Compare that with figures for FYI above.

ADN is getting a nimble high-cashflow operation up and running first. I envisage about AUD $40M free cashflow within a couple of years of startup as payback is only 15 months. I expect they will better these numbers with the DFS.

ADN's process plant will effectively be off-the shelf. That's due to the quality of their ore. It's high quality and very pure so they don't need to do much processing to convert it to a top-quality commercial product.

That $40M pa free cashflow that ADN will generate with a first project will go a long way to them getting a HPA operation up and running without burdening/diluting shareholders. They are also planning a different tack. Since their feedstock is so great (4N HPA can be generated in a single processing stage), OPEX will be very competitive. They are also planning to partner reduce the risk (probably with an existing chemical processor).

I will add that ATC have been churning away for about 7 years to get their HPA project running and diluting shareholders 721% in the process. They started with 108M shares on issue and are now 883M shares on issue.

That's all due to the cost / complexity of the project. ATC market cap has moved but the share price hasn't!