FYI investors: Alcoa’s cheque book revs up interest in WA high-purity alumina venture

Meanwhile in Ecuador, anticipation builds around a possible BHP or Newcrest bid for SolGold and Sunstone looks set to rise on back of Bramaderos project.
25th September 2020
Barry FitzGerald

There is a bunch of hopefuls on the ASX looking to become producers of high purity alumina (HPA), which is set to enjoy super-charged growth in demand for its use in LED lighting and as a heat separator in lithium-ion batteries.

But it is FYI’s planned $198m integrated project in WA – it envisages the Cadoux kaolin mine 220km north-east of Perth supplying a HPA refinery at Kwinana – that has got the interest up of the king of metal-grade and chemical-grade alumina production, Alcoa.

As far as project endorsements go, FYI could not have hoped for a better one.

The pair recently signed a memorandum of understanding to explore the potential for the joint development of FYI’s project, as well as establishing the all-important customer offtake base for the project.

A DFS for the integrated project was released in March ahead of Alcoa’s emergence. It was based on an integrated project producing 8,000tpa of HPA at an assumed average HPA sales price of $US24,000/t.

Life-of-project cash costs were estimated in the DFS at $US6,217/t (FOB Kwinana). Net present value (NPV) was put at $US543 million and the internal rate of return was 46%. Capital payback for the initial 25-year project was 3.6 years.

The project’s annual free cashflow after all operating costs, royalties and corporate taxes was estimated at $US88 million.

The DFS had the benefit of information from FYI’s pilot HPA plant at the Perth suburb of Welshpool.

It is assumed FYI and Alcoa will look to formalise a joint venture by the end of year. Should it come to pass, having Alcoa at the table is obviously going to help in financing what will be a new and value-adding industry for Australia.

Before the emergence of Alcoa on September 8, there was not much interest in the DFS figures, with the capital needs of the project considered a bridge too far for a company of FYI’s size. That has changed, with FYI’s shares moving up from 9.2c at the start of the month to 16c for a market cap of $40m.

Funny thing is that it is easy to find other HPA hopefuls with bigger market caps. But none of them have Alcoa ponying up as a potential partner. Talk about a de-risking event.

SolGold/BHP/NCM

Things are heating up around future ownership of the Cascabel project in Ecuador, the monster gold-copper deposit currently owned by the Brisbane-based and London-listed SolGold (85%) and Canada’s Cornerstone Capital (15% direct, 21.4% including its SolGold stake).

The Alpala deposit on the Cascabel concessions is rated as a Tier 1 deposit, with our own BHP and/or Newcrest positioned to take control by bidding bid for SolGold if they so decide, using their respective 13.6% stakes in SolGold as a starting point.

A standstill agreement prevents BHP from moving on SolGold until October 19 and ahead of that, SolGold has made a scrip-only takeover bid for Cornerstone – a project generation group that drilled the discovery hole in 2014.

Cornerstone has rejected the SolGold bid in no uncertain terms and at the same time has done a bit of a Mad Max by telling BHP that if it does want to move on SolGold, it should “talk to me” about its 21.4% stake.

In an interview with Kitco, Cornerstone CEO Brooke Macdonald pulled no punches, remembering Cornerstone, like BHP and Newcrest, is not happy SolGold sold off a 1% net smelter royalty on the project to Franco-Nevada for $US100m to keep its independence going.

“After October 19, BHP will be free to talk to Cornerstone about our 21.4 interest and join us in our efforts to change the SolGold board to create a board that will act in the best interests of all shareholders and stop breaching their agreements with Cornerstone,” Macdonald said.

That’s all interesting stuff. But it was Macdonald’s comments around SolGold’s “dead in the water” scrip takeover bid for Cornerstone that made for interesting reading for those prepared to look beyond the ASX.

Macdonald said the SolGold bid represented 1.4c per pound of copper equivalent versus the 7c a pound seen in other recent copper transactions.

“Cornerstone has a unique position of interest to any potential acquirer of Cascabel so we are not going to sell the company cheap,” he told Kitco.

He said that when SolGold trades in London at 27p (last sale was 25p), Cornerstone should be around $C6.50 (last sale was $C5.99).

“We are also trading below the $C8.67 that our top three shareholders paid when they swapped their SolGold shares for Cornerstone about three years ago. BHP’s price for their block of SolGold would imply a price of $C11 a share,” Macdonald said.

“And 7c a pound for precedent transactions would imply $C18 a share,” a smiling Macdonald said.

So while there could well be a bid coming for SolGold from either BHP and/or Newcrest, it looks as if the ball will start rolling with Cornerstone being in one of the bidder’s err….corner, and at a price well above its current levels.

Sunstone Metals

Talking about Cornerstone and things Ecuadorian, ASX-listed Sunstone Metals is back drilling at its Bramaderos project down south of the country.

Cornerstone has a 12.5% loan-carried interest in Bramaderos so theoretically at least, should BHP and/or Newcrest move on Cornerstone as a pathway to control of SolGold, Bramaderos would become Australianised.

More to the point is that Sunstone has been left to drift to all of 1.6c for a market cap of $38 million, remembering that $22m can be knocked off that for Sunstone’s 25% stake in the Stockholm-listed Copperstone Resources, which it is now free to trade out if it so desires.

The stripped back $16m valuation on its interests in Ecuador – a hot exploration spot where mining majors have been writing eye-watering joint venture deals to gain access – won’t last.

Espiritu alone could be the change agent. It is one of the epithermal gold-silver targets within the broader Bramaderos project area. Two holes have been drilled, with at least another six holes to come.

The holes are testing what is below the high-grade results returned from surface sampling and rockchips at the prospect.

Early results have been encouraging (a 4m high-grade zone within a 20m lower grade halo). New results in late October, early November are expected.

Meanwhile, the big-time porphyry potential of Bramaderos has not gone away following earlier drilling programs. But what has changed is the interpretation of the likely geometry of the porphyry targets from a large disseminated model, to one that comprises smaller but higher-grade pipe-like intrusives.

That is similar to the story unfolding at Alkane’s exciting Boda discovery in NSW which comes with a narrower high grade zone of better than 3g/t gold equivalent. Back of the envelope calculations suggest it could contain a couple of million ounces at least.

Sunstone’s reinterpretation is pretty robust one, built as it is on three data sets. It will be tested with the drill bit and would have probably come ahead of Espiritu had it not be for COVID making the latter easier to move on.

Up in the north of Ecuador and about 50km to the south-west of Cascabel, Sunstone has struck a sweet deal with a retried Ecuadorian geologist to earn 100% of the El Palmar copper-gold prospect.

It sits on the same regional structure as Cascabel and has been the subject of three holes by Chile’s copper king Codelco, which intersected porphyry mineralisation. And from what is now known from Cascabel, Codelco drilled in the wrong direction.

Drilling will follow mapping and geophysical work.

 

Image: Alcoa - Alumina Gallery

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