FYI’s Roly Hill on how his 15-bagger HPA stock plans to tap a unique EV market
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ASX investors have been tracking a cohort of HPA (high purity alumina) stocks for some time now, and WA-based FYI Resources (ASX:FYI) is one of them.
One of HPA’s fastest growing uses is in the coating for separators that keep apart the cathode and anode electrodes in lithium-ion batteries. In fact, there’s up to ~5kg of HPA in every electric vehicle.
Benchmark Mineral Intelligence principal James Clark has said the multiplier effect of EV growth “means high purity alumina demand in 5 and 10 years will be very significant”.
There are a bunch of other applications as well, led by the established but still growing LED market.
There are incumbent producers, but what sets FYI and the other ASX HPA stocks apart is the process they use.
“Traditional HPA supply is refined from bauxite. The process via bauxite is increasingly becoming controversial due to the environmental impact,” FYI chief exec Roly Hill says.
This bauxite processing route is also a lot more expensive than the route FYI is taking.
FYI’s WA integrated HPA project is based on aluminous clay (kaolin), a higher quality feedstock source with a better metallurgical profile for extracting HPA.
But can they reach production? Stockhead spoke with Hill to get an update on FYI’s plans as the September 5 date approaches for the company to sign a crucial joint venture partnership with global alumina giant, Alcoa.
FYI have risen by more than 1,500% since it delivered its first DFS (definitive feasibility study) and upgraded reserve estimate at the ‘Cadoux’ project back in March 2020. That’s right — 1,500%.
“If you go back to our DFS in March 2020, it was probably the first time a project like this had been validated in the market,” Hill said.
“It marked the first time investors could put some tangible numbers on what we were doing, and the mood swung from one of indifference to one of deliverability.”
The phone started ringing from financiers once the original DFS was published.
Since then, FYI has been exploring a number of options that opened up, based on the project’s economics and project-life projections. That said, more work had to be done in terms of optimising the metallurgy and developing IP around the extraction process.
Hill said FYI’s focus was on how to further increase efficiency, lower capital and operating costs and ensure the project’s position in first quarter cost curve competitiveness.
“Kaolin is a very complex material, and achieving a target purity of 99.99% is very challenging,” he says.
“The chemistry of our kaolin is no different, however has certain characteristics amenable to making HPA — but we still had to carry out the work to assess its chemistry and physical properties,” Hill said.
Aspects of the technology and engineering requirements have been “more difficult and complex than we envisaged at the start”, he added.
“So we’ve been gradually refining and fine-tuning it and the reason we’re doing that is to improve whole economic metrics of the project as a whole to meet the demands of an expanding market.”
That work resulted in a revised DFS this past April where FYI gave the project an NPV (net present value) of US$1.014 billion based on annual production of 10,000 tonnes per annum.
Hill said the update added “a lot of confidence to the market” and contributed to FYI’s share price gains through the middle of the year.
“I think what it showed was an improvement in our process and an increased understanding of the deposit. There were a lot of factors in the second DFS that made story better and resulted in a higher NPV,” he said.
Still, the updated DFS included production quotes of 8,500 tpa for 4N HPA (99.99% purity) and 1,500 tpa of 5N HPA (99.999% purity).
And those purity targets “don’t leave a lot of room for error”, Hill said.
“So we’ve got to get it absolutely right, from development to the scale-up phase and that’s what we’ve been focusing on.”
Investors will be watching closely for an update on MoU with Alcoa, where commercial terms are being finalised for a full joint venture operation.
“It’s a good match in the sense that we’ve done a lot of the R&D and project development work to this point, but then there’s a natural transition to production and that’s where Alcoa can step in,” Hill said.
“They’ve probably forgotten more than we know about making alumina. This is a different product, but they’re good operators with global reach and existing relationships, and all of these things are a huge advantage,” he said.
Following a three-month MoU period from May to August, the two companies agreed to a one-month extension as they iron out the details of the arrangement.
“Part of the delay is in clarifying where we take the project, and what’s the right strategy to actually execute on a global approach,” Hill said.
While HPA is a central cog in the EV thematic, it also has more traditional markets including the componentry for LED lights.
“We do have existing markets that can underpin growth, but the battery and e-mobility thematic adds to the excitement,” Hill said.
“Alcoa appear keen on accessing new markets. They tend to be a material player in the spaces that they operate in so we’ve got fairly strong aspirations for growth but we have to get the strategy right first.”
“We’re aiming to kick things off at a moderate pace with the appropriate development, get the structure right and see where we can take it.”
Lastly, in developing the project over the last 12-18 months, Hill said FYI had gotten a front-row view of the changes underway in investment flows tied to the ethical investing thematic.
“Everyone’s talking about ESG and there’s almost a bit of a bubble at the moment. But it kind of hammered things home for us when we found there was a lot of ESG interest in what we were trying to do,” he said.
“Not only in terms of the EV thematic, but also the improvement from conventional HPA production in terms of the lower carbon footprint.”
“In that sense, ESG has a twofold impact to us. Not only are we aiming to improve our ESG standing, we are presented with another line of funding we didn’t consider previously.”
“I think in a sense, Australia is a little behind in terms of the ESG thematic. But from an investment standpoint, it’s a huge industry that’s still trying to find it’s way yet there’s a lot of dedicated money waiting on the sidelines,” Hill said.
“So for me it’s been interesting to see the ESG shift take place. From our perspective it’s really in the last 12 months that we have witnessed the rapid increase in the sector, and I think it will be a topical theme for investors in the years ahead.”