FYI Resources and Alcoa Australia embark on extended HPA pilot plant trial

FYI Resources Ltd (ASX:FYI) and alumina refiner Alcoa (NYSE:AA) Australia Ltd are readying for an extended high purity alumina (HPA) production trial.

The extended study, set to kick off on Tuesday, November 16, will take place at FYI’s pilot plant facility in Welshpool, Western Australia.

It marks the second joint pilot plant trial between the two parties and is designed to demonstrate improvements to the production process, as well as generate bulk HPA for prospective customers to assess.

The trial will carry a clear environment, social and governance (ESG) focus, providing information for FYI and Alcoa (NYSE:AA) to track how their production process conforms with high ESG standards.

Some of the study’s key operating metrics include:

Binding agreement

FYI and Alcoa (NYSE:AA)’s extended trial stems from a binding joint venture term sheet they struck up in early October.

Together, both parties are determined to erect an initial demonstration plant and a fully-fledged, 8,000-tonnes-per-annum HPA production facility, establishing a market-leading high purity alumina business.

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.

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.

Phase one

Under phase one, which is in motion, FYI and Alcoa plan to draft up a detailed design for the HPA hub, which includes a 1,000-tonnes-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 and 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$2.1 million 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.

Story by ProactiveInvestors