re-posting this as it's a ripper article
FYI Resources: Managing Director buys own share - after doublingeditorial staff
FYI Resources Ltd. (Editorial staff)September 26, 2020
HPA; Photo: FYI ResourcesIt's always a good sign when the CEO buys his company's stock. It makes you sit up and take notice when the CEO buys after the stock has just doubled. Someone believes in their own cause! This is exactly the signal that Roland Hill, Managing Director of
FYI Resources Ltd. (ASX: FYI; FRA: SDL) , sent to the market. Hill bought 1 million shares at $ 0.15 in the market - in addition to the roughly 13 million shares he already owns in FYI.
Incidentally, the purchase was anything but an insider trade, because the news of the planned joint venture with the industry leader Alcoa had of course long since been on the market. The closing price of FYI Resources on Friday was already 0.19 AUD, which corresponds to a market value of just under 40 million AUD. If the JV with Alcoa actually comes or the signs continue to intensify, this should only be the beginning of a real re-evaluation. Because Alcoa can only claim to be number one when it comes to HPA - as a cost leader, quality leader and volume leader. Alcoa clearly recognizes this potential in FYI's business plan (feasibility). In any case, FYI won the beauty contest against its competitors.
Alcoa's strategic decisionAlcoa Ltd. (NYSE: AA)is the world's largest manufacturer of aluminum oxide (99.5% purity). Alcoa produces 17 million tons of conventional alumina every year from the raw material bauxite - FYI uses a special kaolin deposit in Western Australia as raw material for HPA. Alcoa had no previous experience with this and was apparently very skeptical at the beginning as to whether high-purity aluminum oxide could actually be obtained from kaolin. Several months of due diligence evidently led to the strategic decision at the top of the group to rely on the kaolin card themselves in the future and to take a leading role in the fast-growing niche High Purity Alumina (HPA, 99.99% purity). Until recently, the HPA market with its 60,000 tons pa was probably too small for Alcoa.
The existing HPA market is served by Sumitomo and Chinese companies, among others. What these providers have in common is that they use bauxite as a raw material and, in order to manufacture HPA, have to go the extremely energy-intensive detour via aluminum in metallic form. Aluminum metal is then purified to HPA by hydrolysis. This results in a high cost per ton - an estimated industrial manufacturing cost is $ 16,000 per ton - the selling price is wg. strong demand now at USD 30,000 per ton. (FYI Resources expects $ 24,000 in its feasibility). FYI's production costs will be around $ 6,500 per ton, according to the feasibility study.
CRU sees growing supply deficit at HPA until 2028 Lastyear, the consulting firm CRU forecast that the HPA market would remain in relative equilibrium by this year at ~ 60,000 tons per year '4N' (99.99 percent purity). According to the CRU, the supply deficit will increase to almost 30,000 tons per year by 2028. Alcoa has apparently verified this thesis in its own market study and must have come to a similar conclusion. In particular, the need for battery separators in EVs is apparently driving demand. Given this perspective, FYI's estimated 8,000 tons of annual production is only a small contribution to averting an impending shortage.
Conveniently, Alcoa has its largest Alumina production facility in Kwinana, Western Australia, and has been able to follow the work of FYI Resources up close in recent months. During this time, FYI has achieved one milestone after another and systematically reduced the project risk. It started with the resource for 50 years of mining, followed by the mining license for kaolin mining in Western Australia, and the securing of a plot of land in Kwinana for the subsequent processing plant. This was followed by the successful operation of the pilot plant up to the feasibility study and finally the positive feedback from potential major customers (they have now received the second large batch for test purposes). The news of Alcoa's possible involvement should have been well received by future off-take candidates. From their point of view, that would mean even more reliability.
Alcoa looked at all of its competitors, including listed Australian HPA companies Alpha4N (ASX: A4N) and Altech Chemicals (ASX: ATC). In the end, FYI won the beauty contest.
FYI has already removed many major risks through its business plan. The main thing left now is the formal conclusion of a JV contract with Alcoa and the financing of the estimated investment sum of 180 million USD (by the way, Alcoa seems confident that this amount can be reduced, as can Opex). With an Alcoa JV in hand, FYI should be able to finance the project easily. Firstly through off-takers, secondly through long-term debt and thirdly through equity (i.e. issuing shares).
According to Feasibility, the project has an after-tax NPV of USD 530 million (at a 10 percent discount) and could generate USD 88 million in profit per year. FYI plans to go live in 2023. Until then, FYI shareholders should still have a lot of fun. The general meeting is scheduled for October 2nd. Maybe there will be more news by then.
