Red Baron This is in part a response to your post 55472933, and...

Red Baron

This is in part a response to your post 55472933, and in part I used it to gather my thoughts, so it touches on a few other things.

“Mou” was a mental slip, I should have written “Off-take Agreement”.

1. Market size

The 30,000 mt seems about right, and I agree that 10,000 mt is a large slice of that. The market is restrained by lack of supply, and FYI's 12 November Announcement suggests the market would be 60,000 mt if supply were available. What we do not know is when FYI-Alcoa will be able to offer product, and what the starting tonnage is going to be, and its trajectory. The DFS uses 10,000, but this may not be initially, if one considers that Roland Hill said. “We’re aiming to kick things off at a moderate pace with the appropriate development, get the structure right and see where we can take it.” There is more than one market – see point 5.

It could take a few years for production to hit 10,000 mt, and by then the market could be greater than 60,000 mt. However, I agree that the JV would be a significant player in the game at those volumes. However, that level of offtake does not mandate that an Offtake Agreement must be effected – see Points 3 and 4.

At $25,000 per mt, 10 mt is $.25 billion. Why would Alcoa with a revenue of well over $10 billion want to get into a $.25 billion JV from which it would get say half if it were a 50:50 partner? If the potential were greater, why not bypass FYI and go it alone? These are rhetorical questions, rather than concerns.

2. No index for HPA

If a high-purity grade aluminium is currently the feedstock for ultra HPA using the alkoxide production technology, them its index price can be used in Offtake Agreements. This is a theoretical possibility, but whether it is practical is another matter.

3. Fund raising

The prime reason for Offtake Agreements is to mitigate risk in the package of documents used to raise funding, and the period of Offtake Agreements are long. My view is that the backing of Alcoa would suffice to satisfy suppliers of funds that the risk did not require an Offtake Agreement.

4. Risk tolerance

Offtake Agreements are a type of insurance agreements, where the financially weaker party cannot tolerate the risk, and the stronger party can. This why financially robust parties self-insure. If FYI were on its own, it would probably look for an Offtake Agreement, and it would be in a weak negotiating position, which would conduce to it getting shafted.

5. More than purity

I looked at a SASOL report, and it seems that its market for ultra HPA is a bespoke market, with product tailored to customer specification beyond the simple issue of purity – for SASOL, characteristics and morphology are a major differentiator at a per customer level. Also, whatever impurities remain are important, depending on the end purpose. Fot battery separarators, sodium (Na) is probably the worst contaminant, followed by iron (Fe) and lead (Pb).

This is a cut and paste from SASOL, “SASOL refers to its CERALOX product range thus, “CERALOX aluminas have a unique combination of purity and tailored physical properties that make CERALOX alumina excellent starting materials for a variety of applications including: sapphire crystal growth, lighting, inorganic chemical synthesis, alumina coatings, thermal spray, phosphors, polishing, and technical ceramics.”

FYI stated much the same message in its 12 November 2020 Announcement, from which I provide only one example, namely, :The testwork, conducted at the market participant’s expense, was tailored to test FYI’s HPA material for compatibility with both general and niche market applications within existing product sales lines of their established customers.”

6. Alternative to Alcoa

I think the Alcoa JV will occur, but there are alternatives to whom FYI can turn that JV does not occur. I have in the past mentioned Instutut für seltene Erden und Strategische Metalle in Switzerland. If you look at https://en.institut-seltene-erden.de/ you can see how it could fit into the picture. FYI is mentioned at https://en.institut-seltene-erden.de/fyis-hpa-pilot-system-starts-with-trial-production/ Obviously, an alternative partner, changes the funding story, but the fundamental value proposition that FYI' has remains intact.

The 12 November 2020 Announcement did not name the European party, but it stated, “FYI generated HPA material from the Company’s pilot plant trials (see ASX release 3 August 2020) and supplied a European based HPA marketing group with the intention for them to undertake detailed product and market testing with the objective to establish a joint sales and distribution model for FYI’s HPA.”