I think your assessment of the market reaction and justification is fairly accurate. The deal has not provided the certainty that the market was expecting, and it was evident that it was not going to deal with disappointment well. Notwithstanding, there is a strong commitment from Alcoa to proceed with this venture, and I have no problem with the 65/35 terms - the financing was not going to come for 'free'. Personally, I expected a FID would come after the JV was signed, because I didn't think the parties were that far advanced. But I assumed that FID would be for the full production plant, not a demo plant and then the production plant. The demo plant came out of left field, and to exacerbate things further, there is still the need for further Pilot Plant runs. It was reasonable to assume that the Pilot Plant runs were done! So now there is two additional hurdles to overcome, rather than just the FID for the Production Plant hurdle. Kudos to Alcoa for managing the risk of this venture on behalf of their shareholders - they have done a great job. If they can execute this Project as good as they can strike a deal, we are on a winner!
Whilst I appreciate that confidentially provisions may have precluded Roly from informing shareholders of the three Phase Term Sheet path forward, he seriously needs to enhance his communication skills. The tone of the announcement was very poor, and his interviews are painful to watch. Moreover, why the announcement didn't constitute a temporary trading halt to enable the market to digest it, is completely beyond me - seriously WTF! The initial sell-off was a knee-jerk reaction and set the tone for a punishing correction. The market shoots first and ask questions later, but it never got a chance to ask questions or digest the information. Can Alcoa please wordsmith all the important announcements moving forward and give Roly some media coaching. AFL footballs can communicate better than him! Roly - you owe it to shareholders to undertake some personal growth in this area!
The positives:
Alcoa is in the driver's seat and will be commitment to making this succeed now they have announced it to the world
Alcoa is synergistically aligned with HPA development, and FYI could not have a better partner in this venture
Alcoa will open doors for offtake partnerships that would have never been available to FYI**
Funding secured for all three stages of development**
Current market cap. is very underwhelming, and fully takes into account the additional 'hurdle risks' - in fact it certainly looks oversold at current levels, and this is a typical market reaction. Bargain hunters will swoop in to take advantage of this over correction
Retail traders looking for short term gains appear to have exited on mass, and the registry should now be less volatile now
**Whilst I would never down ramp other HPA producers, securing full scale production financing and industry leading offtake agreements, appear to be huge impediments / challenges for other producers. My take is that if Alcoa and FYI can't pull this off, then no one can!
GLTAH!
FYI Price at posting:
41.0¢ Sentiment: Buy Disclosure: Held
