FYI hits the HPA development road with Alcoa deal in hand, but shares fall

FYI Resources (ASX:FYI) has taken the much anticipated agreement with Alcoa for the development of a high purity alumina refining project across the line.

The binding terms sheet is a clear sign that the major miner is aligned with FYI’s goal of turning its HPA project from the current R&D and design stage to reality.

Alcoa will take a 65% stake in the project, which will be carried out in three phases.

However, investors appeared unimpressed that FYI had to give up more than 50% of the project to the mining giant, as the stock sold off sharply in morning trade.

Pathway to production

Of the three phases in the agreement, the first involves the detailed design of an estimated 1,000 tonne per annum demonstration facility, and additional production trials over 2021 and 2022.

Once this is completed, the companies will then make an investment decision in 2022 on proceeding with the development of the demonstration facility, and detailed engineering for a full-scale plant capable of production 8,000tpa of HPA.

The third stage will see the establishment of an incorporated joint venture and construction of the full-scale facility subject to a positive investment decision in 2023.

While both parties will fund their pro-rata share of project capital and development costs, Alcoa will make additional contributions to the demonstration and production facility construction costs.

The major will contribute the first US$5m of FYI’s funding requirement in relation to Phase 2 construction costs, by sole-funding a US$14m outlay for the construction of the demonstration facility.

It will also contribute the first US$68m of FYI’s funding requirement in relation to Phase 3 construction costs, ponying up US$194m for the construction of the full-scale facility.

Estimated total costs for each of the three phases are US$7m in the first, US$50m in the second and US$200m in the third.

FYI says the deal de-risks the HPA project with Alcoa’s management of the JV meaning immediate access to its development skills and expertise.

Its managing director Roland Hill said the deal was transformational for the company and brought the “possibility of production closer to reality” without material dilution to shareholders.

“FYI considers that a future JV forms a robust structure capable of delivering the high quality HPA strategy, as outlined in the DFS, at a time when the international HPA market is forecast to grow in line with the world’s e-mobility uptake and emerging HPA applications,” he added.

High Purity Alumina

Global demand for HPA is increasing due to its use as a coating for separators that keep apart lithium-ion battery cathode and anode electrodes to improve safety and performance.

This is best highlighted by battery electric vehicles, which can use about 5kg of HPA each.

The global HPA market was valued by Allied Market Research at US$1.3bn in 2019 and is expected to reach US$4.8bn by 2026, growing at a compound annual growth rate of 20.7% from 2020 to 2026.