High purity alumina (HPA) hopeful FYI Resources says a pilot processing plant will help snare offtake partners and support project financing.

Demand for HPA, which is used in LED lighting and lithium batteries, is soaring, with sales expected to hit US$5 billion next year compared with $US2 billion in 2015.

FYI (ASX:FYI) will build a pilot plant – basically a smaller, cheaper version of the real thing — as part of advanced studies into its Cadoux project in Western Australia.

The idea is to increase confidence in the company’s design before it commits large amounts of cash to full-scale commercial production.

It will also produce HPA product for potential customers for product testing and off-take negotiations, which also support project financing talks.

FYI shares – which have ranged between 5.5c and 20.5c over the past year – were up about 2 per cent to 6.2c in early trade.

The pilot plant wasn’t actually budgeted for as part of the ongoing Bankable Feasibility Study (BFS) into FYI’s Cadoux project, but it’s OK; FYI will pay for it with an advance on its Government R&D tax rebate.

FYI will pocket an advance of up to $1.1 million, or about 80 per cent of its expected tax rebate from eligible R&D spending for the current financial year.

Completion of the pilot plant is expected late in the June quarter.

FYI managing director, Mr Roland Hill says the pilot plant is critical to Cadoux’s development.

“The results of the pilot plant will contribute greatly to the robustness and confidence in the project and its ability for the overall project capital to be financed,” Mr Hill says.

“The fact that we have also arranged the pilot plant to be financed by an advance on our expected R&D rebate benefits shareholders as there is no shareholder dilution or impact to our capital structure while funding a crucial segment of the project.”