Anyone who's been following my commentary on HPA stocks will remember me making the same point about kaolin: you cannot command premium prices for a wholly ubiquitous raw material that has no barriers to entry.
The same must be said for the IP barriers.
I mean, this JV stinks because FYI just gets 35% for contributing its 35% of the capital and equity, and a few crumbs. It's not the free ride to nirvana like other mining JV's (let's pick GOR / AA) where the big spoon funds everything to get it's slice, and the cash strapped but plucky little spoon gets a bunch of upside. I mean, at this point, FYI might as well fund a 350tpa pilot plant itself because it's basically funding 350tps of a 1000tpa facility.
This exposes, inter alia, the bargaining power one gets from taking a well known source of HPA (kaolin), utilising an off-the-shelf process (HCl sparging) and trying to sell it to a massive conglomerate as if you have any exclusivity, patentable process (in the real meaning of the term) or intellectual properties. This is to say...nothing.
FYI has effectively approached Alcoa and alerted them to the fact that there is a way for Alcoa to break into the HPA specialty market, isn't that a cool idea, and make as much EBIT as it's making already from the whole alumina operation it already has, yes thanks. Great idea, FYI, don't mind if we do.
So they have sat down for 12 months and I expect, Alcoa sat Roly down and said "Mate, we've reviewed everything. Nothing you've done is...new. Nothing you've got is...special. We have, as one poster on HotCopper declared, one of the best R&D labs in the WORLD!!! LOL. So we're, I dunno...12-24 months behind you. So let's just tickle the back of your neck and we'll take the lion's share of your idea, and go in with you. Your 35% is what you get out of it. Or it's nothing, and we just bulldoze you out of the way anyhow."
Their trials using Alcoa's 3N would have proven to both parties that it was much of a muchness; not much nett benefit to Alcoa slinging precursor into FYI, not much risk using kaolin, and FYI is neutral across both options.
That's my reading.
It is a lesson, I think, for anyone who thinks a chunk of kaolin is a ticket to riches untold; if you have exactly the same stuff as anyone else, you end up in the same place as everyone else, and can't(out)compete. This goes for ADN, SUV, AX8...OAR, etc.
Expand
