13 April 2021

Event:

- Updated DFS.

Investment Highlights:

- Project economics further improved in updated DFS: the company recently released an updated DFS for its HPA Project, with outstanding project economics that further improve what was already a robust case. The headline metric was the 87% increase in project NPV to US$1.0B, from US$543M.

- Updated project parameters enhance an already compelling project: FYI will scale up average annual production to 10ktpa HPA, +25% on prior DFS. The company will also now produce 1,500tpa 5N HPA, while the balance of annual production remains 4N HPA. The basket price has accordingly been increased to US$26,400/t HPA product. The company has also lowered its discount rate to 8% (prior 10%) and increased AUDUSD to 0.75 (prior 0.70).

- The Cadoux Kwinana HPA Project remains a massive, long life, high grade HPA project, now with improved project metrics: the updated DFS highlights include NPV₈ US$1.0B (prior US$543M) and IRR of 55% (prior 46%). The project retains its attractive capital intensity with modest - and modestly revised - capex of US$202M for 10ktpa of HPA product. Payback has been reduced to 3.2 years (prior 3.6 years). High margin project with low operating cost of US$6,661/t (prior US$6,217/t). No change to the JORC estimates of Reserve or Resource, with the Reserve comfortably supporting a 50+ year mine life.

- Cash of $10M (FSBe) and no debt. The company continues to advance finance arrangements, progress marketing discussions, and work with MOU signatory Alcoa to establish a JV agreement.

Earnings and Valuation:

- We continue to forecast commissioning and ramp in FY23e with first full year of production in FY24e to deliver earnings of $143M (prior $94M).

- We have an increased risked valuation of $1.52/share (prior $0.68; 0.65x NPV unchanged). Our valuation is underpinned by an unrisked NPV10 of A$1,124 (prior $770M) for the HPA Project in the base, assuming first production in FY23e, twelve-month ramp, and HPA price of US$26,400/t (prior US$24,000/t).

- Considerable valuation upside potential: we note further drivers of value in the HPA project include life extension, potential production capacity upgrade, and/or inclusion of by-product revenue.

Recommendation:

- We continue to recommend FYI as a Buy with an increased price target of $1.52/share (prior $0.68), due to its long life, high grade kaolin asset, and low-cost processing HPA refinery project. FYI aims to be a single source integrated producer of high quality HPA with supply provenance wholly from a tier 1 mining jurisdiction.

- Catalysts for the stock include: 1) FEED and FID decisions and commencement of the Cadoux HPA project; 2) customer offtake MOUs and marketing relationships; 3) updates on financing arrangements; 4) updates on the Alcoa JV; and 5) updates on LOM extension, capacity upgrade, and/or by-products.

[Details in attached 11-page report.] Download below.

Matthew Chen

Research Analyst

D:

E: