FYI Resources updated DFS lifts NPV for planned Perth high purity alumina plant to US$1.014 billion

FYI Resources Ltd (ASX:FYI) (FRA:SDL) has updated the definitive feasibility study (DFS) for its High Purity Alumina (HPA) Project resulting in an increase in forecast net present value (NPV) to more than US$1 billion. Following the release of the company’s initial DFS last year, enhancements to the project include detailed flowsheet advances, process redesign, production optimisation and extensive supporting test-work (including multiple pilot plant trials) to optimise and de-risk the integrated HPA strategy.  After taking into account the technical and commercial improvements, market applied metrics relative to its peer group, updated inputs (exchange rate) and discount rate (8%) the company has updated the base NPV of the project by 87% to US$1.014 billion. Recognising the significance of the updated DFS, investors have driven up the stock price by as much as 9.1% to 60.5 cents intra-day. “Persuasive economic case” FYI managing director Roland Hill said the update to the company’s initial DFS was an obvious progression in the development of the HPA project strategy.  He said: “The quality and robustness of our HPA Project was demonstrated in our initial DFS released in March 2020.  “Since then, the company has continued the evolution of the project through further process design improvements, detailed test-work via numerous pilot plant trials and other supporting activities to assist in de-risking the project.  “There has also been a number of external factors such as the AUD:USD exchange rate movement that has had an impact on the economics of the project.  “It was evident that a more up-to-date financial case be presented to the market.  “The updated DFS outcome represents a persuasive economic case and demonstrates the merit of the project in being developed as potentially one of the HPA sector's highest quality, lowest capital and operating cost projects.” Key project NPV metrics  FYI believes the increased NPV outcome is a more appropriate reflection of the HPA Project's achievable potential and signifies the greater confidence in the project given the progress accomplished by the company in the last 12 months. Updated key project NPV metrics include:  Post-tax NPV8% of US$1.014 billion; Project post-tax IRR 55%; Annual production of 8,500 tonnes per annum 4N HPA (99.99% Al2O3) and 1,500 tonnes per annum 5N HPA (99.999% Al2O3); Average selling price US$26,400/tonne (basket 4N and 5N pricing); Annual project revenue US$261 million; Annual project EBITDA US$186 million; Project capex US$202 million; Project opex US$6,661/tonne; Project payback of 3.2 years; and AUD:USD exchange rate of 0.75 (from 0.70). HPA market outlook  This updated DFS defines a clear pathway for development to commercial production of high quality, high purity 4N and 5N HPA suitable for LED and lithium-ion battery markets. The most recent market survey from the CRU Group and round of interviews conducted with producers, consumers, projects and other market participants in Japan, South Korea, North America, Europe and China conclude there is evidence that the HPA market is entering a phase of mild tightness.  Consumers, particularly in the sapphire market for LEDs, state that supplies of reputable 4N HPA are becoming limited.  In terms of sales volumes, assuming unconstrained by supply of 4N+ HPA, demand is forecast to grow from ~30,000 tonnes in 2021 to over 104,000 tonnes in 2028, a CAGR of 18.7%.  Pricing has been noted by CRU to be in the range of:  US$15/kilogram for misrepresented, off-specification product largely centring on the Chinese domestic market; US$56/kilogram for premium, high quality and reliable supply and specialist applications; and US$100/kilogram (up to) for spot and small parcels. The modelled HPA demand is forecast to grow rapidly at approximately 18.7% CAGR between 2021 to 2028 and as a result CRU models the HPA market to tip into deficit in 2021, as reputable 4N and 5N as current supply capacity fails to meet the market demand as production has not kept pace with demand growth.  The company sees tremendous potential opportunities as a result.  HPA market demand and deficit forecast 2015 to 2028 – CRU HPA Report 2021. Potential offtake partners FYI signed a memorandum of understanding (MOU) in September last year with leading alumina producer, Alcoa of Australia (NYSE:AA) (FRA:185) (BMV:AA1) (VIE:ALCA) which will explore the possibility of Alcoa joining with FYI and furthering the development of the company’s innovative and fully integrated HPA refining project for commercialisation - as well as the establishment of offtake customers into HPA markets. The MOU also establishes a pathway to progress to a joint venture following the satisfaction of certain conditions precedent which cover further HPA pilot plant variability trials being successful.