n the middle of the coronavirus crisis, FYI Resources surprised...

n the middle of the coronavirus crisis, FYI Resources surprised the market with a double strike. To publish the expected feasibility study, the company has delivered an equity commitment of up to AUD 80 million from the Luxembourg fund GEM Global Yields LLC SCS (GEM)!

FYI is thus giving any skeptics a first partial answer to the obvious question of how the planned 189 million USD investment requirement for the HPA project should be represented. It is usually the case that companies first secure the loan component for capital-intensive projects and then look for equity. FYI does it - unconventionally - the other way around. However, one can assume that the equity commitment will have a positive effect on possible off-take partners as well as on future (public) lenders. The perspective for the actual feasibility of the project becomes much more predictable for everyone involved.

Shareholder-friendly financing route

The instrument of an equity facility is a shareholder-friendly financing method, the costs of which are significantly lower than that of ordinary broker financing. The company also has the freedom to access the required equity at its own discretion. FYI Resources freely decides on the time and the amount of the tranche to be called up. The only limiting factor is that GEM Global Yields may only hold up to 19.9 percent of the shares.

FYI will therefore need a significantly higher share price in order to be able to access the facility on a larger scale. Theoretically, the stock market value would have to be around $ 400 million to access the full $ 80 million. And theoretically, the $ 80 million could cover the entire equity component in financing. Today's FYI report speaks of this explicitly. This is not entirely out of the world: After all, the calculated net present value (NPV) according to the feasibility study is USD 543 million after taxes (AUD 830 million).

With the achievement of further milestones, in particular off-takes or further financing commitments, the huge valuation gap between the current market value of AUD 12.7 million and the AUD 830 million NPV should at least close, if at least. This increases the chances of drawing significant equity capital, which in the best case scenario could reflect positively on the valuation. Another positive aspect is that GEM is seen in the industry as a meticulous, long-term investor with a strong institutional background. That could also draw the attention of other investors to FYI.

Managing Director Roland Hill made it clear in the conversation that he would only use the equity commitment in connection with project financing. He wants to meet the temporary need for working capital "in an unconventional way". Hill excluded a capital increase at the current level. So you can expect more surprises at FYI.

Results of the feasibility study confirm pre-feasibility

The results of the final feasibility study (DFS) essentially confirm the assumptions of the previous pre-feasibility study from 2018. The difference between the two studies is in the range of 5 percent. FYI remains at the target of 8,000 tons of annual production, the mine is expected to have a lifespan of at least 50 years and the DFS was calculated to be only 25 years. All technology components used are conventional and have proven themselves in the past. All of this results in impressive financial indicators for the project: With a (conservatively high) discounting of 10 percent, the HPA project reaches an NPV of USD 543 million, the internal rate of return (IRR) is 46 percent, and the amortization of the investments will be postponed Reached 3.6 years.

The total cost of ownership was calculated at $ 6,217 per tonne of HPA produced, with experience from operating the pilot plant in particular being included in the calculation. The pilot plant has also shown that FYI is able to control the purity and, if necessary, produce qualities close to 5N. What has changed in favor of the project is the demand situation on the HPA market.

According to the company, various large samples from the pilot production have been sent to potential customers. A larger delivery is still pending because the HPA material has to be shredded to the desired particle size by a so-called jet mill (jet mill). The delivery of this mill has been started.

Source: GI