High Purity Alumina (HPA), the lesser known chemical commodity to ride the coat tails of the EV boom. HPA is used to create a ceramic liner that is used to insulate between the cathode ad anode in a EV battery. This increases the quality, life and safety of a battery. Demand growth is accelerating as per the results of Japan listed W-Scope. Although EVs will give it a nice boom, HPA demand is driven by the ever increasing use of LEDs in various applications. Innovations in LEDs, giving softer, warmer and more dynamic lighting qualities has seen an acceleration in demand over the second half of the current decade. The other main use is in Sapphire glass. Between these 3 end-uses, HPA demand is expected to increase by 3 to 5x over the 2020s from the current rate of ~28ktpa. Supply is relatively tight with the only slack in China, who's reputation for consistent quality of HPA (particularly the 4N variant) is poor. Supply growth in the last decade is limited and largely coming from the largest producers such as Sumitomo Chemical. This sets up a scene where new players, such as FYI, will need to fill the supply gap. The new players are looking at an alternative route of HPA production using a chemical conversion process that converts Kaolin into HPA directly via a HCl leaching process. Current producers use reverse-hydrolysis which converts pure aluminium metal back into alumina (i.e. go through the Bayer process to turn it back to alumina). To date it’s not clear if incumbents will try the HCl Kaolin process. The advantage of FYI's method is lower costs. I note that peer feasibilities at USD15/kg or less, with spot prices north of USD30/kg and rising (all figures on a 4N basis).
Why FYI? FYI has what I believe is the best quality Kaolin deposit which will provide peer leading project economics. This is evidence by the periodic releases made by the company over CY18 as it progresses through the PFS. The PFS is late, initially due June, but is on-track to release late Sept/October. If the economics come in as I expect, the SP is expected to re-rate as investors gain more certainty around funding parameters. FYI is tightly held and is well backed institutionally (Paragon and Regal, both known for astute resources investing).
