Good afternoon, everyone, and welcome back to Day Two of Sidoti's Virtual Investor Conference. I'm Steve Ferazani, an analyst at Sidoti. I can still see some people still coming into the room, so I'll give it a few seconds. In the interim, let me remind everyone we expect to have some time available after what we think is going to be a very informative presentation for Q&A. If you do have questions, just press that Q&A button at the bottom of your box, type in the questions, and we're going to get to as many as we can, time permitting. I don't want to take up too much time because I know we have a—I think this is a first-time presenter, as I recall, and I think it's a pretty exciting presentation. I got a preview a couple of weeks ago.
I think you're going to be very interested in the upcoming story. So happy to welcome 5E Advanced Materials, ticker is FEAM, and we're joined by CEO Paul Weibel. Paul, I don't want to take up your time, so I'll turn it over to you.
Thanks, Steve. Appreciate the opportunity here to present today. Paul Weibel, CEO, been with the company for about four years, moved in, came on board as the CFO, and moved into this role in June of last year. I'm about one year in the seat. Really looking forward to giving the overview of 5E. As Steve said, ticker is FEAM. 5E is a primary boron project. Many times I get asked, what is boron? Boron, at a very simple level, is the fifth element on the periodic table. It's very much a super material in that it's light, it's heat resistant, it's energy dense, it has a great tensile strength. I use the analogy that if Iron Man were to build a suit, it would be a suit made out of boron.
If it had a little bit more boron, it probably would survive the Thanos snap. Boron is very much pervasive across defense applications. In fact, boron sits on the Defense Department's critical materials list. Boron goes into many traditional applications, such as glass and LCD screens, to cleaning supplies and ceramics, to both fiberglass and cellulose insulation. It also touches many defense applications and kind of high-value-and-use items, such as permanent magnets. The third hardest material on planet Earth is boron carbide. That goes in the Kevlar and tank armor. It touches semiconductors. Elemental boron goes into smokeless rockets. There is very much, when you are in kind of the time we are in today with tariffs and trade wars and security of supply, boron kind of very much becomes in vogue from just a supply chain perspective.
There was actually an article that's relevant today that came out in Bloomberg talking about rare earths and how the Chinese dominate that. Actually, the Chinese don't have any boron, and the boron market is ultimately a global oligopoly. It was quite fortuitous timing. Our project sits very much halfway in between Las Vegas and Los Angeles. It is a multi-year generational asset. We're permitted for 90,000 tons of boron oxide, which is about 160,000 tons of boric acid. Our first phase of commercial production will be 130,000 tons of boric acid. You can divide that by the 14 million tons, and it's a lot of mine life. We have a small-scale facility that's operating today, delivering on-spec product that we're using for customer qualification as we work towards off-take agreements.
We'll be out here shortly with an update of our technical report summary and put reserves on the balance sheet as we complete pre-feed engineering and release of PFS probably in late June or early July. All major mining permits are in place. As we think about getting into the big commercial scale that really gives us that pathway to a $100 million run rate of EBITDA, we target U.S. Export-Import Bank's $285 million letter of interest that we will begin diligence as we stage gate over to feed engineering. Kind of that's today we're focusing very much on the development, but thinking about the debt financing to build this over the next three years. Here's our team, really good team, seasoned team. All have different, are excellent in various disciplines. Lonnie Bailey was at Albemarle Silver Peak Mine. Josh is our CFO.
He spent many years in oil and gas. Mark Zamek is one of the few people that worked for the boron oligopoly. He spent 20 years as the North American Sales Manager for the largest domestic borate manufacturer. Rod McLean has seasoned mine builder and has built projects globally much larger than ours. Our board is streamlined in that we really cover four disciplines. We're a chemical plant above ground, which is Graham. Brynn has in-situ mining experience. Barry is financing, and Kurt is policy. That green spot is our deposit. It was an evaporated lake bed millions of years ago. We sit about two miles off of Interstate 40. We're a two-hour drive to the Port of L.A., Port of Long Beach. You can see the green line there. That is the Kinder Morgan Mojave natural gas pipeline that goes directly to the Permian.
Included in our estimate today is very much that tie-in to the gas, which will run a cogen facility that will give us the power. We do have shore power today. It's only about a meg, though, but it's quite useful. We have six parcels of real property in the state of California. Mineral rights are conveyed with the real property. All around us is Uncle Sam's land with the BLM. As I kind of noted, the project was discovered in the 1960s. That led to the land acquisition and a very elaborate exploration program where the resource was defined. Some small pilot plant operations in the 1980s. The major permitting initiatives occurred in the 1990s. In 1994, we received our record of decision from the BLM, as well as our state mining and reclamation plan from the Department of Conservation.
As noted, very attractive geography and tied into very, very good infrastructure, being so close to the Port of L.A. and Long Beach. Our method of mining is a little bit different than the other borate producers, where they are very large open pits. We have a bit more of an ESG thematic. We will mine via solution. We'll inject a very dilute hydrochloric acid underground. That reacts aqueously with the mineralized zone. In turn, that comes above the surface. We'll crystallize out the boron. We'll hit that solution then with lime that increases the pH. It drops out all the metal salts and deleterious elements as hydroxide impurities. You have a calcium-based waste solution that we will introduce sulfuric acid into. That does two things. It precipitates out gypsum, which can be sold into the drywall and cement market.
It aqueously regenerates hydrochloric acid with that. Makeup water becomes our mining feedstock to go back that hole. It is very much a closed-loop process. From an ESG touchpoint, you'll have the open pits have very large impacts on planet Earth, whereas we are about a nine-inch borehole and a plant above ground. This is a picture of our crystallizer and our large demonstration plant. We are using that. It is fully operational. We have about 18 months of mine data. We have about 12 months of chemical plant processing data. All that data has been incorporated into our pre-feed engineering program, where we've really taken the time to optimize our CapEx and our OpEx and really focusing on producing super sacks, sending them to various customers so we can underpin our project with off-take agreements. The focus definitely has been on the CapEx and the OpEx.
We're targeting the OpEx to be about, on a cash cost basis, $525 a ton. We see the price of boron at about $1,000 a ton today. The distribution market is already in the $1,200-$1,300 a ton. If you look at actually the supply and demand dynamics of boric acid, which is what we'll produce, the market's in a supply deficit today. There's only six known boron projects globally. Highly concentrated deposits of minable borates is incredibly rare. Only two of those six projects have their permits today. We are one of those two. We forecast utilization being the major impact to supply and demand, and that will ultimately drive pricing higher. We've seen pricing be higher in the market in that the other U.S. supplier, their revenue is up 40% over the last two, three years.
Steve, did you have a question?
No, sorry. Go ahead.
Okay. If you think about the business, $525 a cost, that puts us kind of middle of the cost curve. If you're at, it's a good business at $1,000 a ton. It's a great business at $1,200-$1,300 a ton. At 130,000 tons at run rate, there's your $100 million in EBITDA. We've been very vigilant in getting an optimized CapEx and OpEx. This is a very simplistic view of our flow sheet. You can see it's that closed-loop process where you'll produce the primary product in the borates. You'll then drop out your byproducts. We do have lithium, albeit smaller quantities, and there's also magnesium. Those would be bolt-ons down the road as we think about optimizing and further reducing credits that could be accretive to our business and increase IRRs.
Obviously, you have your major byproduct, which is the gypsum, and you have optionality to produce calcium chloride as well. If I think about this chart, CapEx is targeted for about $420-$430 million. We are very much in the yellow phase where we are gearing up for commercial. We target the XM loan to be a good portion of that. There will be, obviously, an equity commitment that's required to come alongside that debt. We have the ability to toggle that. With a royalty transaction, we are unencumbered by any royalty today. We will kind of assess cost of capital as we think about bringing in that remaining equity capital to come alongside the debt. I think from a project IRR perspective, phase one falls right around that 20% IRR.
Listen, given the California jurisdiction, all the major mining permits are in place. It's a very good, high-quality project that I fully believe will get built and has every bit of an opportunity to get built over the next four years. Obviously, from there, given the size of our resource, there's opportunities to scale. As I think about what our catalysts are here we're focusing on, we're about to deliver our PFS study. We put a release out yesterday highlighting that our vendor testing for our major pieces of kit are complete. The flow sheet's going to be locked down, and we'll stage gate over to feed engineering. On the back of our PFS, we'll run a parallel process with feed engineering and the diligence for project finance. We'll be looking to secure all of our off-takes. There's plenty of catalyst-rich opportunities here.
We target feed engineering to be about a nine-month process and FID in about 12-13 months' time. With that, I think I can pass it back to you, Steve, to ask any questions.
Great. Thanks a lot, Paul. I always wondered what that raise hand button does. Now I know. Sorry about that.
It's flagged for me, so.
I know it works. Appreciate the presentation. Extremely informative. As a reminder to everyone, we do have some time for questions. If you do have a question, press that Q&A button at the bottom of your screen and type in, and we'll get to as many as we can. We are already seeing the queue fill up. A couple of interesting questions. One about what have you learned from the pilot program? Are you using things you learned in the planning of the larger commercial project?
Yeah. Listen, one of the major things we've actually learned is that our head grade's much better than historical averages that we thought. What the demonstration plant, small-scale facility, actually utilizes is evaporative crystallization. What you'll do is you'll boil off water to increase concentrations. That's how you'll begin the filtration process to make the borates. From an OpEx perspective, that requires natural gas. Boiling water is energy intense. You can go the opposite way. If you have a better-performing head grade, you actually can chill that solution. As you chill, if you have higher concentrations of borates just naturally from the mining side, you can chill that, and that's a more better OpEx scenario to extract out.
What we've also realized is that time and temperature are incredibly impactful to our head grade as well. We're not like we mine, but there's very much like we are a massive chemistry equation. HCl and water all have a molecular weight, as does culminate. There's a reaction that occurs underground. To the extent you can get things hotter and sit for longer, it creates a more robust chemical reaction. If you think about if you have a cold glass of water and you have salt, you dump that into that cold glass of water, it doesn't all dissolve. If you heat that, it can be super soluble, thus being more saturated with sodium. It's a very similar application to the borates.
Okay. Okay. The question is the timeline right now for the larger project. I think you ran through some of the boxes you got to check to get there. It sounds like you're making progress.
Yeah. Listen, we IPOed in the U.S. We were previously predominantly ASX-listed. And we IPO-ed in March of 2022. There was very much a culture of promotion. While there's a lot to promote, I believe, and catalyst-driven, it needs to be really driven off of fundamental execution. Because in the U.S., your word is your bond, and you need to do exactly what you say you're going to do. If you miss those deadlines, you're going to get really punished. People will sell the stock. There's a big emphasis on following through and hitting our milestones. I do believe we'll get a PFS out here. I've drafted the red lines drafted. The board's working on Section 10, 14. The GEO's done their part. Market study will be wrapped up here. That'll come out.
I'd love it to be in June, but I think probably you have July 4th, so maybe it's the week after. Then we have about nine months of feed engineering. The main driver is going to be debt financing. That's going to really facilitate it. If the debt can get underwritten, the equity will definitely follow. In turn, I think it's a 24-month build. I think target being mechanically complete in 2028. I think a six-month commissioning cycle. As I think about some of these executive orders and what President Trump has put out there, there's a big emphasis on including mining in the industrial base, make more in America. Listen, I don't know if manufacturing jobs will come back to the U.S., but I know that this project's a very easy win for the current administration.
That's right. That's right. I don't want to try to put, I don't want to go too far into the future, but do you have any line of sight to profitability or cash flow, or are we way too early on that?
Listen, I think that there's opportunities on some of the so we have a team that has been operating the small-scale facility. Listen, the first prize here, no doubt, is $100 million a year in EBITDA. There is an emphasis on that. There is a point where the pilot plant has served its purpose. We are looking at angles to potentially, could you repack? We have Mark on our team that knows every customer in the borate business. There is demand. It is something we've discussed. Listen, it would be great to reduce that cash burn. There is value in being able to retain our team. Listen, we're not in the gulf where there's lots of chemies and people that know how to operate chemical plants. We have a really good team today. We have 20 operators, and we have three different supervisors.
We want to retain that team because as you think about scaling and going from just a demonstration to $130,000 tons, the operators we have today are our leaders of the future. To the extent we can at least mitigate the need to go back to the market or reduce our burn, hey, we're going to lift some stones, and we have some ideas.
Fair enough. How important is it to have those off-take agreements in place before you start construction? Is that critical, or do you know it's there?
You need to have the off-take agreements for the debt. You cannot do construction until you get the debt. Listen, I thought we are in a great spot with customer discussions. The off-takes are a little bit more of a challenge in the sense that a bank is looking for price and quantity to really be mitigated. The quantity is not the issue. The price is the issue. The borate market has been accustomed to two very large companies that have very big balance sheets, basically being able to sign off on three- to five-year market-based off-take agreements. That is what the boron market is. If you go talk to Export-Import Bank of the United States, they are like, "No, no, no. We need a fixed price off-take agreement." All of a sudden, or we need to figure out how we are going to mitigate the price.
Listen, we can go to we have public OIs out there with some very large class manufacturers. And we could target 20,000 or 25,000 tons of borates at market. And they're happy. Great. Done. But we have a bankability problem then.
Oh, okay.
We need to listen. I think all options are on the table: floors, collars, equity, co-investing. You got to think about it as you go to project finance. It is no different than going to buy a house. An off-take agreement basically simulates a job offer or a W-2 in that underwriters are going to loan you money to put a down payment.
They know if you're producing it, they know there are buyers.
It's a very similar process.
Yeah. Okay. Okay. That's helpful. I do have a question here about your previous restructurings. And if you could walk through a little bit about your capital structure today.
Yeah. I think, listen, the plan was always to raise equity in the U.S. We ended up being funded by convertible notes after we did a direct list. Listen, we had some permitting headwinds with the EPA. I did not mention that one. Our final other mining permit is an underground injection control permit with Region 9 of the U.S. EPA. It took a little bit longer than we anticipated to get our final approval. We did have that. That led to kind of a first restructure and a reset of the convertible note conversion price. As we looked to continue to build on the business, the market feedback was, "You do not really have an investable entity.
You have $82 million in convertible note debt, and you have a $30-$40 million market cap. The lenders who are both, listen, there were questions on, "Is this a loan to own?" It was not. The lenders continued to be highly supportive. They just like their structure. We got to a point last December where we want equity to come into the business. We want people to believe that there is a real project here that has material upside. This is a business that needs to be financed on equity capital. We did restructure number two, those notes fully equitized. Today, they own about 75% of the company.
Oh, okay.
It's a completely clean capital structure, no debt. Those lenders, when they converted, they got warrants at 3.55 a share. They're a little bit in the money. They're a one-year term, so they only have nine months left on the warrant. All our management options did, as part of that restructure, get reset. They're struck at the same conversion price as the lenders, which is 6.72 a share. I'm quite motivated here to see a higher share price. This is all my team. In turn, you have a small amount of warrants up at $17, $18 a share, which if you buy the stock now, that's a good problem to have.
Yeah. For sure. I mean, since you talked about the stock price, you have the clean balance sheet. You have a clear timeline. You've walked through what the project looks like. Why is the stock here? What are the next near-term catalysts?
Yeah. Listen, I think so the cap structure was a problem. Project economics are the next item. We've teased that out. The PFS floor signing off on that CapEx is going to be sort of like, "Okay, everything's believable now." As I think about this from just a valuation perspective, and this is all in the public domain. We kind of preached this because people were, they asked. A modeled NPV on a DCF is about $700 million. It's about a 20% project IRR, which is fantastic given the jurisdiction we sit in and all the permits we have in place. That's just phase one. You can compare that NPV to a, well, I walked through the cash costs and where we see boron selling for. You can tie out to a $100 million EBITDA if you assume mining trades on a five to six times.
Let's assume six times $100 million. You're at $600 million. You can kind of see that. I believe that with credible execution, sound IR, getting the story is not going to sell itself. You got to be out in the public markets, which is why we're doing this conference with Sidoti. There are other conferences we're at in New York. We're doing broker lunches and broker dinners. My job is now out in the public markets. I think we should start to, over time, as we put off-take agreements and we hit our catalyst, start to accrete up towards that $700 million-$600 million level. There are $20 million shares outstanding today. It's a nice even number. You can start to do the math on where we should be.
I think there are non-dilutive options such as the royalty that you can really assess. You can look towards the strategist on the equity side where it is priced at a premium in exchange for those off-take agreements. I think we re-rated higher. As we come into commercial production, we should be seeing this company trade at an enterprise value or DCF have some intrinsic value attributable to the stock. We have a phase two of expansion. When we start to go above that, which is completely in the realm of possibilities, the market is telling you we are getting credit for those future phases of expansion.
Excellent. Yeah. There are certain metals that get very much talked about in the future demand growth. We hear about copper all the time and moly and lithium. Antimony has been big lately because of government regulations. You are an old Wall Street guy. How did you get involved in boron? That is not one we hear about a lot lately, right?
Yeah. So yeah, funny. I started my career at Bear Stearns. My first day on the job, the BSAM funds blew up and went subprime. I worked my way back to PwC, and I got my CPA. I joined 5E after about seven, seven and a half years in the mining services space on the buy side because there's a lot of parallels to where the lithium market was 15-20 years ago. The global boron market's an oligopoly, and there's very few supply of projects that can come online. As you think about it, it's a little bit more complex of a story in that for lithium, people see EVs. They see the adoption rates, those CAGRs.
They're like, "You can quickly quantify how much demand's going to be there." Whereas on the boron market, boron is critical, and it goes into like 300 applications. Some are just not that super and sexy, so they don't get the attention the batteries do. I saw a ton of parallels to where the lithium market was. I kind of use the analogy on the rare earths. Listen, rare earths are no doubt the star of the show today, and they're the best supporting actor or the best, they win the whatever, the Emmy or whatever. Boron is a great supporting actor. There are so many applications in this world that you cannot make without borates. Actually, when you think about and look at the substitutability and the value in use, there's really actually not a lot of substitutes.
That creates a pretty good position from a producer standpoint.
You talked about there's six projects that are at least in the planning stages. Chances are not all six move. Where are we in supply and demand if we don't get even half of these?
On the boric acid, we are in a deficit today. It's not a material deficit yet, but the canaries in the coal mine are starting to drop. You have dead canaries in cages that are saying, "There's utilization here that's not working." Given that there's not a lot of substitutes, I think, listen, the six deposits, we're one. Ioneer i s another. I think Ioneer is 170,000 tons. Capacity will be 146. Rio is a million tons of boric acid equivalent. There's been no growth CapEx. They're going to deplete. Rio has a JADAR project that I don't think is coming online. It's had permits revoked. There's another Serbian deposit very much still in the exploration phase. If you think about a mining cycle, permitting has its own kind of microscope, but you have to prove out the resource. You got to do process work on the bench.
What's the mineral? How's it going to come out? What's the optimal way to do that? You got to get all your permits. You got to get infrastructure. You got to get water. You got to get rail. You got to get power. You need to have the commercial aspects. You got to do the development work. You got to raise all the money. It's just like a cycle that's like a really long cycle. Even if you streamline permits and whatnot, that's like one part of it.
Yeah. Yep. Interesting. Interesting. We are just about out of time, Paul. I wish we could do this for another half hour. Any closing thoughts for everyone?
Yeah. Listen, I think from 5E, it's like we are a compelling opportunity with very real permits. We are in the right asset at the right time in the right location. There are very good fundamentals on supply and demand underpinning the investment proposition for borates. We really are the only true pure play way to play the boron market. I appreciate the opportunity and the ability to get the story out.
If we did not get to your questions, please, I know Paul will happily welcome questions. You can direct them at 5E Advanced Materials. Or certainly reach out to us at Sidoti, and we can forward them along. Paul, thanks so much for your time today. Hope everybody found it as informative as I did. I hope everyone enjoys the remainder of Sidoti's virtual investor conference. Thank you.
Have a great day.