Critical Minerals for the 21st century
LAVA BLUE (UNLISTED)
Lava Blue is a materials science company at the forefront of the critical materials revolution in Australia. It has developed innovative methods for producing high-purity materials, with an initial focus on High-Purity Alumina (HPA). Lava Blue’s proprietary HPA production method utilises hydrochloric acid to produce HPA from low-grade aluminous feedstocks, including waste streams from mineral processing. This significantly reduces costs compared to traditional methods that rely on expensive refined aluminium feedstock.
Leveraging QUT’s Materials Science Research Expertise Funded with Government Grants
To develop its intellectual property, Lava Blue has collaborated with the vastly experienced materials science department at the Queensland University of Technology (QUT). This collaboration gives Lava Blue a highly leveraged, cost-effective IP engine which the company has funded with $6.7m in non-dilutive grants received from the Federal government.
A Strong Business Model Focused on a High-Margin Monetisation Strategy
Lava Blue aims to monetise its IP portfolio by licensing its IP to other critical material producers and via primary production of value-added HPA. The company has already secured three HPA licensing agreements with a strong pipeline of potential licensees both in Australia and overseas, paving the way for substantial royalty revenue in the coming years. By 2034, Lava Blue plans to establish 1,600 tonnes per annum of primary HPA production capacity, further diversifying its revenue.
Significant Valuation Upside Driven by Micro and Macro Tailwinds
Driven by expected growth in HPA demand for various applications such as LED manufacturing, we expect Lava Blue to generate $102m in revenue by 2034. Given its highly lucrative IP portfolio, robust business model, immense revenue potential, and strong management team, we believe Lava Blue presents an attractive opportunity to invest in an exceptional company well-positioned to not only drive but to benefit from the energy transition.
Canary Capital Research Report
KEY INVESTMENT INSIGHTS
Clear Business Strategy
Lava Blue’s mission is to be a leading producer of high-purity, high-value materials required for the energy transition. Lava Blue’s business strategy is focused on the development of unique methods for producing these critical materials, starting with HPA, a good example of a high-purity, high-value material experiencing high demand growth rates. A key element of this strategy involves developing intellectual property by harnessing the expertise of a dedicated research team at QUT to explore and create proprietary critical material production methods. This research initiative has been notably supported by non-dilutive grants, significantly reducing costs and mitigating risks associated with Lava Blue’s investment in the project. Additionally, Lava Blue aims to monetise its IP through a licensing model, enabling the company to achieve relatively high profit margins without substantial capital investment. By integrating these two strategic components, Lava Blue is positioned to earn high returns on capital on an IP portfolio that is constantly being enhanced. In addition to its licensing business model, Lava Blue plans to enter primary HPA production. This will allow the company to capitalise directly on the growing demand for HPA whilst reducing reliance on the licensing business.
Scalable Business Model
The absence of broad exclusivity clauses in Lava Blue’s licensing agreements allows the company to acquire additional licensees without limitations. So far, Lava Blue has demonstrated its success in signing up licensees in Australia. With the projected surge in demand for critical minerals such as HPA, we expect the company to continue to sign new licensees, both in Australia and overseas. Additionally, Lava Blue’s business model scalability is bolstered by its licensing model, where royalty revenue grows at no additional cost as licensees add production capacity and scale their production of critical materials, e.g. HPA.
For primary HPA production, Lava Blue intends to employ a modular approach in the design and build of its HPA plant, ensuring easy scalability of production capacity. Lava Blue’s unique HPA production method enables the use of both off-the-shelf equipment and custom-built machinery fabricated at PRiSM. This approach is anticipated to streamline equipment procurement, making it faster, more cost-effective, and scalable to build production capacity.
Successful Management
Lava Blue has a strong management team and board with extensive experience in the materials science, energy, and mineral resource industries. As the Managing Director of the company, Michael McCann has applied his extensive background in energy consulting and multi-disciplinary research project management for both government and private organisations to effectively secure non-dilutive grant funding, which has been instrumental in advancing Lava Blue’s IP portfolio. His extensive experience also enabled him to formulate Lava Blue’s lucrative low-capex licensing business model focused on the high-demand critical materials industry. With Michael McCann at the helm, we are confident that Lava Blue will persist in realising its strategic goals and achieving further success.
Sylvia Tulloch, the company’s Executive Chairperson and Head of Science, oversees the scientific operations in an executive capacity. With decades of experience as a materials scientist, Sylvia has been invaluable in leading Lava Blue’s science initiatives to maximise the throughput of the company’s research programs. Sylvia’s ongoing involvement with the company is expected to strengthen the company’s IP portfolio continually, which will increase monetisation opportunities and the blue-sky potential of breakthrough functional materials.
Michael McCann and Sylvia Tulloch have been supported by a team of experienced part-time executive directors who have supported the company in various functions such as legal, finance, and commercialisation.
High Barriers to Entry
Lava Blue has invested significantly in its unique intellectual property portfolio of patents and is continuing to add depth and value to its IP through the addition of process controls, integration of machine learning and AI and development of in-house expertise. We believe this safeguards Lava Blue’s unique value proposition from potential competitors who might try to develop innovative methods of producing critical materials. By securing its IP portfolio, Lava Blue has established a barrier of entry, making it difficult for competitors to replicate its critical mineral production techniques without investing significant amounts of time and money. In addition to its patent portfolio, Lava Blue also has trade secrets around the methods of production and formulations to produce critical materials. This adds an additional layer of protection for the company.
Significant Investment Upside
Lava Blue has the potential to earn gross revenue of ~$100m within the next 10 years. Given the high operating leverage implicit within the company’s licensing and primary production business model, a significant portion of net revenue earned (33%) is expected to drop straight to Lava Blue’s bottom line. Underpinned by these strong fundamentals, we currently value the company at ~$146m, which is 4.2x its current post-money valuation of $35m. We believe Lava Blue’s valuation could significantly increase if the company exceeds expectations in securing new licensing agreements and expands its primary HPA production capacity beyond 1,600 tpa.
Furthermore, our intrinsic valuation does not take into account the value of Lava Blue’s non-HPA IP and mineral resource portfolio. These assets represent an added layer of value on top of an already attractive investment opportunity. More information regarding our financial forecasts and valuation can be found in our in-depth research report.
High Purity Alumina
HPA is a highly refined form of aluminium oxide (Al₂O₃) characterised by its purity level of 99.99% or higher. It is a critical material and is widely used in products such as LEDs, semiconductors, sapphire glass (touchscreens), and lithium-ion batteries due to its exceptional thermal stability, hardness, and high purity. It is also utilised in advanced ceramics, medical devices, aerospace components, synthetic gemstones, and optical lenses.
Lava Blue’s HPA Production Method
Lava Blue employs what it refers to as the ‘Modified Hydrochloric Acid Method’ for the production of HPA. The majority of the HPA on the market today is either based on essentially dissolving aluminium metal and recrystallising it, or using an aluminium process waste. Lava Blue, on the other hand, can utilise a wide range of low-grade feedstocks such as kaolin clays, mineral waste, coal fly ash and recycled aluminium, as well as aluminium hydroxide, a by-product from alumina refining.
Lava Blue produced its first HPA on 26 March 2018 from a sample of kaolin from its Lava Plains mineral resource. Following that first laboratory-scale process, the company refined the chemistry required to produce HPA from kaolin sourced from the Company’s mining lease on Lava Plains in North Queensland. Over two years of work, they eventually perfected the process of purifying HPA from the range of impurities in the Lava Plains source material (an iron-rich, ‘kaolinitic’ assembly produced from weathered volcanic ash). Having produced high-purity alumina from this low-grade feedstock, the Company began to explore other low-grade and contaminated aluminous feedstocks from which HPA could be refined.
Lava Blue’s Unique Advantage
Lava Blue’s ability to utilise a variety of low-grade feedstock to produce HPA means that HPA can be manufactured as a co-product alongside other mineral processing where the waste stream or overburden contains some aluminium. This increases the supply of feedstock, much of which is readily available and often at a ‘negative cost’.
Unlike conventional methods that rely on refined aluminium products as feedstock, Lava Blue’s innovative process also significantly reduces the total embodied energy required to produce the finished HPA product, thus resulting in fewer emissions generated.
Centre for Predictive Research into Specialty Materials (PRiSM)
PRiSM (Predictive Research into Specialty Materials) is Lava Blue’s advanced minerals processing and demonstration facility, located in the Redlands Bay area of South East Brisbane. The facility is used to produce samples of high-purity materials and inform the engineering design of full-scale production facilities. Since it commenced operation in June 2023, PRiSM has been producing 10-20kg batches of >99.99% purity HPA per week. These samples are being used by licensees for market testing and by Lava Blue to investigate options for downstream value-adding as well as to improve product control and develop product variations. Lava Blue’s demonstration-scale HPA production facility using a hydrochloric acid route is unique in Australia and dramatically de-risks industrial scale-up of HPA production while providing sufficient material to develop markets and value-added applications for HPA.
QUT Collaboration
Overview
Lava Blue has a cornerstone collaboration with the Queensland University of Technology (QUT), where a dedicated cohort of researchers develops and translates Lava Blue-directed and funded laboratory discoveries into highly value-adding processes for critical materials.
Research Team
At the time of writing, Lava Blue’s QUT research program employs 5.5 FTE post-doctoral research leads and operators, 10 postgraduate researchers, and technical staff. The program is supported by four Professorial-Level Advisors, including one 0.5 FTE.
Research Funding
To fund its research and operations, Lava Blue has capitalised on non-dilutive grant funding. Since 2019, Lava Blue has obtained multiple government grants totalling $6.7m, along with annual R&D tax rebates totalling more than $6m in the same period. These grants have provided the company with a high-leverage means to develop its unique and commercially viable IP portfolio.
Business Model and Go to Market Strategy
Overview
Lava Blue’s business model revolves around two core elements: a licensing model and primary production. By focusing on these avenues, the company aims to fully maximise the value extracted from its IP portfolio.
Licensing Model
Lava Blue’s strategic focus lies in monetising its distinctive intellectual property through a low-capital-intensive licensing business model. Lava Blue’s licensing model for HPA production involves upfront license fees followed by 20-year royalty streams post-commencement of production. In return, Lava Blue provides core processing IP and science, test work on particular feedstocks, engineering support services, and significant foundations of know-how, trade secrets and shop floor skills, including QA/QC processes and analytical methods required to maintain and demonstrate very high purity.
Current Licensing Customers
Lava Blue currently has three licensee customers for its HPA product: Vecco Group, Critical Minerals Group (CMG), and Queensland Pacific Metals (QPM). Vecco is a Queensland-based critical minerals company focused on creating a vanadium battery supply chain. CMG is a Queensland-based company focused on the production of critical minerals required for energy storage, electric vehicles and renewable energy. QPM is focused on the production of critical materials for the lithium-ion battery and electric vehicle sector through its Townsville Energy Chemicals Hub (TECH) Project.
Long-Term Sales Expectations
Given the strong market demand for HPA, Lava Blue plans to have a minimum of 20,000 tonnes of HPA production under license by 2030 and as much as 30,000 tonnes per annum by 2034. Assuming an HPA price of US$25,000 and an average royalty fee of 4.5%, Lava Blue expects to generate recurring royalty revenue of ~AU$34m in 2030 and ~AU$51m in 2034. Lava Blue expects two of its three current HPA licensees, totalling a potential 8,000 per annum, to be in production by FY27-28. The overall commercial framework of the licensing strategy ensures that Lava Blue is rewarded by its licensees for producing and maintaining high-quality products that achieve higher-end prices.
Primary HPA Production Opportunity
In early 2024, Lava Blue embarked on a sole supplier strategy aimed at partnering with startups that require HPA in the tens of kgs to low hundreds of kgs to be utilised in niche and new applications, such as medical implants, engineered ceramics and battery manufacturing. Lava Blue plans to grow with these start-ups as they scale the production of their products that require HPA. The supply of HPA will be delivered by PRiSM. In line with this strategy, Lava Blue has partnered with two battery manufacturing start-ups in Australia, both of whom will need increasing volumes of HPA. Lava Blue is also developing relationships with HPA users in Europe who require tens to hundreds of kilograms annually for specialised applications.
Market Analysis
General Market Research
According to Mordor Intelligence, the global HPA market is expected to reach 70,400 tonnes by the end of 2024 and grow at a CAGR of ~22% to reach 190,000 tonnes by 2029.
Other Market Research
In their feasibility study, Alpha HPA, Australia’s only other operating HPA producer, provided market research performed by CRU Group that indicated that the global demand for 4N HPA (99.99% purity) could grow at a CAGR of 31.6% from 35,000 tonnes in 2018 to 500,000 tonnes in 2028. However, using a more realistic ‘supply constrained’ demand forecasting model that accounts for expected supply inadequacies, CRU expects the HPA market to grow at a CAGR of 17.6% to reach 177,000 tonnes by 2028. Assuming a price of US$25k per tonne, the HPA market is expected to reach ~US$4.4 billion by 2028.
Market Growth Drivers
The strong expected growth in the HPA market is underpinned by the growing demand for LEDs and Lithium-ion batteries. HPA is utilised in the manufacture of sapphire glass used in LEDs, which are experiencing increased demand across various applications such as lighting, micro-LEDs for high-definition screens, and LEDs integrated into smartphones and EVs. On the other hand, HPA is also used in ceramic-coated separators for high-performance lithium-ion batteries, which is growing in step with the growth in Li-ion battery manufacturing. The use of HPA for new applications, such as sodium ion batteries, is also expected to contribute to increasing demand.
Lava Blue’s Target Market
Thus far, Lava Blue has directed its licensees towards the production of HPA for the LED market given it consumes the largest portion of HPA and has less demanding specifications compared to other HPA applications. In the battery end of the HPA market, though in the early stages, Lava Blue is actively collaborating with partners to understand what is required to make ceramic-coated separators and solid-state battery ceramics.
KEY PEOPLE
-
Sylvia Tulloch
Executive Chairperson and Head of Science since 2015
Sylvia is a materials scientist, with experience in the establishment and management of high-technology businesses, with a focus on commercialisation, mineral processing technologies and the cleantech sector. As Chair of Griffin Accelerator Holdings and a member of the CBRIN Board, Sylvia is an active member of the Canberra innovation ecosystem. She is also the Non-Executive Chair of ASX-listed Zeotech Limited (ASX:ZEO). Sylvia has been on the Boards of several Cleantech industry associations and was also a member of the Future Manufacturing Industries Innovation Council and Chair of the ACT Renewable Energy Innovation Fund Business Advisory Board.
Sylvia holds a Bachelor of Science (BSc.) and a Masters in Materials Science (MSc.) from the University of New South Wales, Australia.
-
Michael McCann
Managing Director and Founder since 2015
Michael has 30+ years of experience in the energy and resources sector. In 2009, Michael founded Mt Rosey Mining Company to acquire and develop the Lava Plains mineral province. He then founded Lava Blue in 2015, when he incorporated Lava Blue Ltd as the parent company of Mt Rosey Mining Company. Michael originally trained as a journalist and has worked as a scientific publications editor at the National Health and Medical Research Council and Australia Energy News. Following his work as a journalist, Michael worked for and started numerous energy consulting firms. Michael holds a Bachelor of Arts in Journalism from the University of Canberra.
-
Uwe Boettcher
Non-Executive Director since 2016
Mr. Boettcher is the Principal of the law firm Boettcher Law. He started his career at the firm now known as King & Wood Mallesons. Uwe is a mediation, insolvency, and dispute resolution specialist with over 40 years of experience in commercial and corporate law. He has a special interest in investing, with a focus on early-stage commercialisation of technology companies. Uwe holds a Bachelor of Arts and Laws from the Australia National University.
-
James Palmer
Executive Director and Part-time CFO since 2019
James has a number of non-executive directorships and provides contract CFO and Advisory services to fast-growing entrepreneurial companies. He was CFO to archTIS Limited (ASX: AR9) and before that CFO for Seeing Machines (LSE:SEE). James is also the Group CFO of MCi Carbon, an Australian clean technology company. Before joining Seeing Machines James ran his own business providing consulting CFO services and advice to start-ups. Prior to that, James spent 20+ years at major accounting firms.
James holds a BSc (Honours) in Management Sciences from Manchester University and is a Fellow of both the Institute of Chartered Accountants Australia and New Zealand, and the Institute of Chartered Accountants in England and Wales. He is a registered company auditor in Australia and a graduate of the Australian Institute of Company Directors.
-
Michael Ford
Executive Director and Head of Queensland Operations since 2020
Michael has over 35 years of experience in international commodities & trade, agriculture, waste management, and critical minerals. Throughout his career, he has traded various commodity exchanges around the world, including agriculture, oil and metals. Michael has held director and senior management positions in large Australian and international companies, including the Chicago Board of Trade.