Independant Investment Research, page-15

Goldinvest

FYI Resources: Big strides and significant potential

• Press

e-mail

editorial staff

FYI Resources Inc. December 13, 2021 Hits: 592

Batteries Lithium Electromobility Cooperation EcoGraf Rating Research FYI Resources HPA Alcoa LED Elektromoblität Elektromobiliaet LEDs

Location of FYI's proposed HPA facility; Photo: FYI Resources

4.29 out of 5 - 7 votes

Thank you for rating this post.

The analysts of Independent Investment Research looked at the Australian HPA company FYI Resources ( WKN A0RDPF / ASX FYI ) and put the rating at 0.70 in an update given the company's "great progress" since the experts' first report in late 2020 AUD per share. In the longer term, however, there is still significant upside potential.

The defining event since the middle of the year has been the signing of a binding agreement with aluminum giant Alcoa (NASDAQ: ALCOA) to develop the HPA project, based on a previous letter of intent that Alcoa had for comprehensive audits (including marketing studies) and a successful test run in the Used FYI pilot facility, according to Independent Investment Research.

As the analysts further explain, before deciding to work with FYI, Alcoa also examined other companies and processes so that the decision in favor of FYI is a confirmation of the company and its energy-saving process. FYI's process includes hydrochloric acid extraction to create HPA from high-purity kaolinite, said Independent. At the beginning of 2021, an updated feasibility study showed the potential to reduce costs by around 50% compared to previous, traditional producers.

According to the analysts, the agreement consists of a three-phase development plan, with the investment decision pending at the end of each such phase. The aim is to produce 8,000 to 9,000 tons of 4N-HPA (99.99% purity) commercially by 2025. Possibly, Independent continues, there could also be some 5N production (99.999%). With a participation of 35%, FYI Resources does not have to make any further payments (free carry), with which Alcoa earns a share of 65%.

Following on from the early October announcement, FYI announced that Alcoa will provide $ 243 million of the estimated $ 250 million in Phase 2 and 3 capital costs, according to the experts. This means that FYI only has to raise USD 7 million of this amount, which should be feasible from the existing financial resources, believes Independent. The current, $ 7 million phase 1, which includes further tests on the pilot plant, is fully funded by Alcoa, it said.

In the second phase, a demonstration plant with a capacity of 1,000 tons per year will be developed and the engineering plans for the commercial production plant with a capacity of 8,000 tons per year will be drawn up. Phase 3 would then be the development of the commercial production facility. According to the analysts, it is also possible that the demonstration plant will be built near the markets in the USA, but the plant with a capacity of 8,000 tons per year will be located in Australia.

As Independent emphasizes, the partners can focus on other, downstream opportunities in parallel, as FYI is doing, for example, in the current agreement with EcoGraf (WKN A2PW0M) , which examines the potential of HPA for coating anodes in lithium-ion batteries to use.

Project risk significantly reduced

Independent believes that the partnership with Alcoa significantly reduces project risk, including not only that Alcoa approved the funding, but also that FYI now has access to, among other things, Alcoa's expertise, project development capabilities and customer relationships. According to the experts, this should lead to a comparatively problem-free project development, should Alcoa stick with it until commercial production, and ensure that cost and time schedules can be adhered to. According to Independent, this is important at a time when there is a shortage of skilled workers and rising costs for goods and personnel.

Especially since Independent believes these developments come at an ideal time in the "critical" and battery materials markets. Some projections would predict that the demand for 4N-HPA will increase to 140,000 tons by 2026. (It is currently around 40,000 tons.) The increase will be primarily due to the use of HPA in LEDs and as separators in lithium-ion batteries, it said. In addition, the governments are increasingly relying on domestic production of critical and battery materials, so that the FYI and Alcoa project has already received both federal and state recognition.

Independent also points out that the importance of ESG is increasing. FYI has already initiated a robust ESG assessment of its activities and is now being independently reviewed on a quarterly basis.

In view of all these developments, according to Independent Investment Research, a steady news flow and substantial project progress can be expected, as there is now a clear development path.

The analysts see the valuation for FYI Resources in the base scenario and based on the 35% participation at 0.70 AUD per share. This does not include any financing, except for warrant exercises, as Independent assumes that the current FYI funds should reach commercial production as long as everything goes according to plan.

In the longer term, depending on successful project development and production, the analysts see considerable upside potential compared to the base scenario if the multipliers customary in the industry are used for the key financial figures to be expected.