The FYI Resources Ltd [ASX:FYI] share price is up 6% after increasing the net present value of its high purity alumina project by 87%.
FYI Resources Ltd [ASX:FYI] shares were up as much as 9% in early trade and are currently trading at 58.5 cents per share.
FYI share price continues a positive run of late, with the stock up 140% YTD and up a heady 1,300% over the last 12 months:
FYI Resources background
FYI is a resources company focused on developing a vertically integrated business specialising in high purity alumina (HPA) for use in tech applications.
Its corporate objective is to become a leading producer of HPA, addressing what it anticipates being a global demand for the ‘high specification and diverse application product.’
FYI increases project’s net present value
FYI Resources today updated the definitive feasibility study (updated DFS) of its high purity alumina (HPA) project, resulting in the company increasing the project’s net present value (NPV).
FYI attributed the increase in NPV to ‘major technical improvements, substantial project de-risking and other key commercial developments’ achieved since its initial DFS announcement on 11 March 2020.
The company updated the base NPV of the project by a significant 87% to US$1.014 billion.
FYI came to this total after considering the technical and commercial improvements as well as market applied metrics relative to its peer group, updated exchange rate inputs, and a discount rate of 8%.
For context, the NPV provided by FYI last March was US$543 million with a 10% discount rate.
The revision in the discount rate from 10% to 8% reflects the company’s ‘increased project confidence.’
FYI explained that its updated DFS reflects higher forecasted financial returns and a derisking of the HPA project.
Some of the key updated project NPV metrics include:
- Annual production of 8,500 tonnes per annum of 4N HPA and 1,500 tonnes per annum of 5N HPA.
- Average selling price of US$26,400/tonne (representing a basket 4N and 5N pricing).
- Updated post-tax rate of return (IRR) of 55%, up from 46%.
- Annual project revenue of US$261 million.
- Annual project EBITDA of US$186 million.
- Project payback of 3.2 years, down from 3.6 years.
- AUD:USD exchange rate of 0.75 (up from previous metric of 0.70).
FYI noted that the average selling price increased from US$24,000/tonne (100% 4N). According to the company, this still reflects a ‘conservative selling price.’
FYI explained that it is relying on a DFS assumption that its project’s ore reserve life will be 25 years.
Based on this, the company expects the project’s total sales (initial 25 years) to equal US$6.1 billion, revised up from an initial US$4.7 billion.
FYI estimates a total project net operating cash flow (for the 25-year period) of US$3.3 billion.
FYI Resources and high purity alumina
What exactly is HPA?
High purity alumina is a form of commercially produced aluminium oxide. HPA with a minimum purity level of 99.99% is categorised as 4N HPA.
HPA is a specialised form of alumina and typically attracts higher prices than less pure aluminium oxides like smelter grade alumina (SGA).
HPA is valued for its hardness and mechanical strength, its corrosion resistance, biocompatibility, and its high melting point.
FYI described HPA as a ‘versatile material allowing a multitude of uses in new age industries.’
HPA provides raw materials used by low-carbon growth industries like LED lighting and lithium-ion batteries (LIB) in electric vehicles.
4N HPA is used as protective coating on separator materials used inside the lithium-ion batteries.
According to FYI, lithium-ion batteries are the largest potential growth sector for HPA demand over the coming decade.
FYI Resources outlook
FYI revised its annual production target from 8,000 tonnes per annum to 10,000 tonnes per annum on ‘expected HPA market growth.’
According to market surveys and interviews conducted by FYI, the company believes that the HPA market is ‘entering a phase of mild tightness.’
FYI explained that consumers, particularly in the sapphire market for LEDs, are stating that supplies of 4N HPA are ‘becoming limited.’
FYI forecasts that demand will grow from about 30 kt in 2021 to over 104 kt in 2028, which represents a CAGR of 18.7%. This assumes that the sales volume is unconstrained by the supply of 4N+ HPA.
Further, citing figures from CRU Group, FYI stated that the HPA market is expected to ‘tip into deficit in 2021, as current supply capacity fails to meet the market demand.’
The company commented that this presents ‘tremendous potential opportunities as a result.’
FYI Resources Managing Director Roland Hill stated that the updated DFS ‘represents a persuasive economic case and demonstrates the merit of the project.’
That said, FYI still has further pilot plant variability trials to go, and the company still needs to complete the HPA project’s final investment decision.
Importantly, while FYI outlined evidence for rising demand in HPA, the demand will mean very little if it does not secure partnerships and offtake agreements.
As FYI itself pointed out, today’s updated DFS is yet to incorporate ‘signing of customer MOUs and strengthening of marketing relationships,’ as well as ‘advancing financing arrangements.’
While today’s news was received well by the market, investors are likely aware that FYI Resources has a lot more steps to take on its HPA journey.
HPA, LEDs, lithium-ion batteries, new-age tech.
If you’re interested in these things and want to know how you could possibly profit, then I recommend reading our free lithium report. It outlines three stocks that could surge on the back of renewed demand for lithium in 2021.
For Money Morning