FYI Resources Ltd (ASX:FYI) (FRA:SDL) recently released results from a joint high purity alumina (HPA) pilot plant trial with Alcoa achieving 99.998% Al2O3 purity and successfully producing samples from the Cadoux project with average purity of five nines (5N) Al2O3 - surpassing expectations.
Foster Stockbroking considers these results “outstanding”, stating: “We see the potential for the latest results to improve project economics for commercial production with 5N product (priced up to US$50,000/tonne) attracting a material premium to 4N product; we note the original project contemplates an 8,000 tonnes per annum 4N HPA project.”
Flowsheet validation and MOU conditions
Foster said: “The successful trial results not only validate the innovative flowsheet and metallurgical process, but also the end-to-end operation of the pilot plant, which operated continuously over seven days.
“Critically, the operation and demonstration satisfy one of the Alcoa JV MOU conditions."
The trial samples are now set to undergo further product qualification in end-use markets.
Foster said: “Trial samples will be delivered to potential offtake parties for further product qualification, including in the LiB and LED lighting markets.”
Earnings and valuation
The company has cash of $6.8 million and no debt.
Foster stated: “We note FYI continues to negotiate with Alcoa to progress Cadoux as a JV, which we suspect will come with balance sheet access to reduce project risk further.
“We have unchanged earnings and continue forecasting commissioning and ramp in FY23 with first full year of production in FY24 to deliver earnings of $94 million.
“We have an unchanged risked valuation of $0.68 per FYI share (0.65x NPV).
“Our valuation is underpinned by an unrisked NPV10 of A$770 million for Cadoux in the base, assuming first production in FY23, 12-month ramp, and HPA price of US$24,000/tonne.
“We maintain our view Cadoux is a high-grade, long-life asset with modest capital intensity and attractive high margin economics.”
Valuation upside potential
Foster said: “We note further drivers of value in the Cadoux project include life extension, potential production capacity upgrade, emerging scope for 5N product and/or inclusion of by-product revenue, deliberately omitted by the DFS.
“We continue to recommend FYI as a BUY with an unchanged price target of $0.68/share, due to its long life, high-grade kaolin asset, and low-cost processing HPA refinery project.”
Catalysts for the stock include:
- FEED and FID and commencement of the Cadoux HPA project;
- Customer offtake MOUs and marketing relationships;
- Updates on financing arrangements;
- Updates on the Alcoa JV;
- Updates on LOM extension, capacity upgrade, 5N products, and/or by-products; and
- Optimised DFS in 1H21.