If investors are herd animals, then one can say with certainty: the herd is not currently dealing with the topic of high purity alumina (HPA). Interest in high-purity aluminum oxide with 99.99 percent purity (4N), which is used as a high-performance insulator for the safe separation of anode and cathode in lithium-ion batteries or as a basic component for powerful LEDs, has declined sharply. Around two years ago, when everyone was talking about lithium-ion batteries, HPA had gotten a little bit of the spotlight for a short time. Companies that had promised to produce HPA cheaper from kaolin by alternative methods were popular. In the meantime it is about companies like Altech (ASX: ATC), Alpha 4N (A4N) or also FYI Resources (ASX: FYI; FRA: SDL) become quieter.
But that doesn’t change the fact that the industry apparently continues to demand higher-grade HPA. This development is now reflected in rising prices. While two years ago a price of $ 25,000 was expected for 4N HPA, Chinese companies are now apparently demanding $ 40,000 per ton. This development should renew interest in low-cost alternatives. The fundamental signs for alternative HPA (4N) have therefore probably never been as cheap as today.
With this in mind, the latest FYI Resources announcement should be read. The company sent prospective customers high-grade HPA (~ 99.995%) for testing in early February. Apparently, these tests have turned out to the satisfaction of the customers, because they have now requested larger quantities of HPA material for further product qualification. FYI will again produce the additional sample material, tailored to the specific requirements of each interested party, in its pilot plant in Western Australia. FYI expects to deliver these larger samples in July 2020.
The material will be of the same quality as the previous test samples. FYI managing director Roland Hill confirmed that FYI had received positive feedback from the companies after the first tests. The requests for larger quantities confirmed that FYI’s HPA met the high quality standards. In particular, potential customers appreciated the low levels of sodium and iron and the surface shape of the HPA. Hill called the requests encouraging. The larger patterns will allow potential customers to complete their qualification assessment. He expects these additional customer tests to result in long-term supply contracts, Hill said. The demand from interested parties comes mainly from Europe and East Asia.
In March 2020, FYI published its Definitive Feasibility Study (DFS). The study already showed excellent economic indicators for the project at calculated prices of USD 25,000 per tonne. Currently, the increased demand for higher grade 4N-HPA is met by conventional production where aluminum-metal is converted to aluminum oxide by hydrolysis. This process is extremely energy-intensive and therefore expensive. The cost of producing HPA from the raw material kaolin is about half that of conventional production. The limiting factor is that only certain kaolin deposits deliver suitable qualities. This has been proven to be the case at FYI Resources’ Australian Cadoux site. FYI already has the mining license including all environmental permits.
The investment in an HPA refinery in Kwinana is estimated at approximately $ 200 million. However, the project can be assumed to have a 50-year lifespan. FYI could generate $ 100 million in free cash flow annually. This may not sound very realistic given the current market value of less than AUD 10 million. But remember: stock market value is often a “herd value” (or the result of the herd’s absence) and sometimes has little to do with business reality. Individuals could see an opportunity in this delta. To view the pilot plant that is in operation during the DFS studies – see the following link on the company’s website: Link to the video of the pilot plant: https://drive.google.com/file/d/1_7pJklbshnOUHRPa_1-WYzrHeBV9kv-g / view
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