Ann: FYI & ALCOA SIGN BINDING JV TERM SHEET FOR FYI HPA PROJECT, page-544

"At first glance, you might think that FYI is responsible for 35% of the $ 257 million, or $ 90 million. Alcoa is taking on a large portion of this, however, so the total cost to FYI will be only $ 14.8 million, or 6% of the $ 257 million. The bottom line is that FYI retains 35% of the shares until production takes place at a net cost of just $ 14.8 million, or 35% for just 6% of the capital cost. That seems very good business to us. Why the market responded the way it did is a mystery."

When the binding term sheet was announced, I was initially interested in roughly calculating Alcoa's effective valuation of the FYI business included in the JV (everything minus Cadoux?). Assuming the incorporated JV eventuates and the estimated capital costs hold across the 3 development phases, what will have Alcoa paid for their 65% stake?

A 65:35 split of the $257M development CAPEX would give 167M:90M (say, were an upfront payment to have been made beforehand for the 65% stake). As you stated, Alcoa are covering the majority of this such that FYI is only required to contribute $15M. (242M:15M)

FYI 35% stake commitment effectively reduced by $75M. Therefore, a simplified estimate would have Alcoa ultimately paying $75M for the 65% stake. Of course, it's a staged entry with minimal capital commitment in the early days, much like an earn-in agreement.

JV incorporated, all expenses thereafter to be shared on a pro rata basis.

Of course, partnership with Alcoa affords the JV so much intangible value that it is difficult to come to a realistic valuation figure. Technical expertise, industry clout, offtake market outreach, US equity market exposure and perhaps most importantly, a far less draining pathway through the debt funding process.

Would be good to get your thoughts on this.