FYI Resources Ltd (ASX:FYI) has progressed a partnership with a global leader in the alumina industry to create a market-leading high purity alumina (HPA) business.
The ASX-lister and Alcoa (NYSE:AA) of Australia Limited have inked a binding, joint venture term sheet that stipulates they’ll work together to realise FYI’s dream — creating an initial demonstration plant and a fully-fledged, 8,000-tonne-per-annum HPA production facility.
Alcoa is expected to front the construction costs linked to the HPA refining project, bringing the asset out of research and development and into reality.
More broadly, though, the term sheet paves the way for a future joint venture agreement — one which will see FYI and Alcoa collaborate to produce HPA for the global market.
“Transformational event”
FYI Resources managing director Roland Hill said: "Coming to joint development terms on our HPA project is a transformational event for FYI.
“The strong alignment between the parties and resulting HPA business case is outstanding.
“Today’s agreement brings the possibility of production closer to reality without further material dilution to our shareholders.
“FYI considers that a future JV forms a robust structure capable of delivering the high-quality HPA strategy, as outlined in the definitive feasibility study, 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.
“FYI considers that the project has potential for scaled increases in production across multiple jurisdictions including North America and Europe. FYI would like to thank Alcoa for the company’s professional and dedicated work throughout the due diligence stages and commercial discussions.
“We look forward to working together to form a material HPA business to realise our vision for HPA.”
Multi-stage HPA project
Under the term sheet, FYI will own 35% of the HPA project, while Alcoa will pick up the remaining 65% stake.
The asset will come to life over three stages, and each party will fund their share of the capital and development costs based on their holding.
However, Alcoa will also provide extra capital to cover the construction expenses, cementing its 65% interest.
Here’s what the three stages involve:
Phase one
FYI and Alcoa will draft up a detailed design for the HPA hub, which includes a 1,000-tonne-per-annum demonstration facility.
Additional production trials for the HPA product will take place over this and next year.
All up, this initial stage of works should set the companies back US$7 million, and from here, they can decide whether to advance to the next chapter.
Phase two
If the investment decision next year is a go, FYI and Alcoa will launch their joint venture.
The demonstration facility will enter construction, while engineering for a full-scale HPA plant will also kick-off.
This fully-fledged HPA hub is anticipated to generate eight times as much HPA as the demonstration model, with costs associated with this stage of work pencilled in at US$50 million.
Once it reaches this stage, Alcoa would cover the first US$5 million of FYI’s funding requirement under the phase two construction costs.
It will solely fund the required US$14 million to bring the demonstration plant online.
From here, both companies can elect whether or not to proceed, and they expect to finalise their formal agreements as part of phase two's final investment decision.
Phase three
A joint venture company will come online in phase three, as long as FYI and Alcoa reach a positive investment decision around 2023.
This is where the full-scale HPA plant enters construction — in tandem with engineering activities, bringing the hub to life should cost around US$200 million.
From here, Alcoa would front US$68 million in construction costs on FYI’s behalf, sole funding US$194 that’s needed to build the fully-fledged facility.
Both the demonstration and primary production plants will be based on FYI’s HPA process flow sheet.
Project terms
As part of the deal, Alcoa will manage the project’s development and the future joint venture.
This will leverage off the company’s existing structure, with a joint venture committee to include three Alcoa reps and two FYI members.
Alcoa will also pay US$2.1m for its 65% pro-rata share in the pilot plant trials that will take place in phase one.
Overall, the entity that emerges in phase three is poised to become a material HPA producer, with Alcoa to market the future product around the world.
If a joint venture eventuates, it could position both parties at the forefront of the HPA refining industry.