Paul Weibel, Chief Executive Officer of 5E Advanced Materials. Welcome, and thank you for joining us, Paul.
Thanks, Dmitry. Great to be here today.
Thank you. Before we dive in, a quick note. 5E Advanced Materials has posted its safe harbor statement on its investor tab of their website, and in the latest presentations on their website, which can be found at www.5eadvancedmaterials.com. Also, feel free to send your questions in through the chat and we'll work them into the discussion or cover them in our management series report to be published later. If you'd like to request a meeting with 5E Advanced Materials, simply indicate that on the conference portal. With that out of the way, let's get started. Paul, let's start at the highest level, particularly because 5E looks quite different today than it did even a few days ago.
For investors new to the story, can you introduce 5E Advanced Materials, explain what you're building around boron and critical materials in Southern California, and then put the proposed Searles Valley acquisition and Fort Cady into the context of that broader strategy?
Sure. Appreciate the question. Fort Cady and 5E were a boron-based project in California. The boron market is a global oligopoly where predominantly two companies dominate 85% of global supply. The investment thesis in 5E was really underpinned on fundamental supply and demand. The boron market often get asked what does boron goes into. It is 300 plus applications, makes life as we know it exist. It goes into very mundane, ordinary things such as cleaning supplies, ceramics. It goes then into all forms of glass. That is actually fiberglass, PYREX, and LCD. Then it goes, boron is a micronutrient, so all liquid fertilizers, about 10% of the formulation is boron. Then it touches semiconductors, nuclear, permanent magnets. There is your ordinary, regular inflation-based growth, and then you have the specialty applications, permanent magnets, nuclear, AI, et cetera, that gets you above normal CAGRs.
This market is growing 4% or 5% per year on the demand side. On the supply side, it is the oligopoly. So, 85% of global supply, as I mentioned, is two companies. The smaller of the two, which is again, a very large market supplier, is 25%. They have a finite mine life. It is an asset that is available for sale. Their financial metrics clearly demonstrate revenues aggressively up, prices are following, and then you can use those metrics to identify that ultimately cost is going up as well. As you get to an end of a mine life, the variable cost profile escalates. So you have two phenomenons right now where demand is growing, pulling prices higher, and on the supply side, costs are getting pushed higher. As a result, prices are going up.
We had one of five potential deposits that could come online, and this is where it will tie into Searles. There was always a smaller producer, made 135,000 tons a year of five mole sodium borates and about 45,000 tons a year of boric acid, but 1 million tons of soda ash. That company had challenges, which we can talk about some of that, and it is a very sad series of unfortunate events. But ended up filing Chapter 11 bankruptcy, which we acquired. For 5E, this gives us the ability to work. Upon closing this acquisition, we are revenue generating. They are producing today. They have been operating through bankruptcy. What this positions 5E is really you have our large colemanite deposit that sits in Newberry Springs that we have de-risked. It is a mine life on a reserve basis today of 40 years. The resource is much larger.
If you look at the production that is forecasted and total resource, adjusting for reserves could be a 200-year asset. You have Searles, who is about 90 mi north of us. They are a tincal deposit, so geological complements. In production today, you have our other neighbor who is the 25% global supplier, had a reserve downgrade in 2018, is for sale right now, finite mine life. Now you have two of the assets under one entity. With production and with revenue right out of the gate. What this positions 5E is to, as the other asset depletes down, 5E between the two projects can be the second-largest global boron producer in the world.
Okay. Well, that's a great summary and a very timely pivot, if you will. Let's go directly to Searles Valley because this appears potentially transformational for the company. You're acquiring one of only two operating boron producers in the U.S., as you mentioned. This company has a 150-year operating history, including operating through bankruptcy, as you've said, an existing customer base, and more than 9,000 acres, I think, of brine resources that they can pull out of. Can you walk us through exactly what you're acquiring? You mentioned soda ash, but I don't think it's part of the acquisition. Explain how this changes 5E from a pre-revenue project developer into an operating critical minerals and specialty chemicals company.
There's a lot we've bought with this. We did buy the soda ash plant. We could turn on soda ash down the road. It doesn't make economic sense today. To generate the soda ash, the market just is actually unfavorable from a soda ash perspective. There's a West End plant that is what's making their V-Bor today, as well as their sodium sulfate. There's an operation where they make salt. They have almost an unlimited supply of salt. They're selling that into oil and gas out of Bakersfield, California. Some very good customers that they're selling to. It comes with their Trona plant that's been idled right now. That's where they can make 45,000 tons of boric acid. It does come with their Argus plant. That's what they made soda ash with.
It comes with their SAC plant, which is a soda ash consolidation plant where you can actually capture emissions. It reduces the brine carbonation and actually reduces pH, so it's a free source of acidification. That can put out a byproduct of actually 240,000 tons of sodium bicarbonate, baking soda. There's different specs on the market. They have a brand-new sulfate of potash plant that is sitting there. It was built in 2018. It's like a new car that you kept in the garage and put a cover over. They have two very large boilers that previously ran on coal, but they now run on natural gas. They were fungible. Each of those boilers can put out 27 MW of power. There's two of them. They can sell back to the grid in California. There's not a nice, clean technical report. We will do that. But there's mineral tenure.
75% of the land is federal land. They have long-term leases with the BLM for that mineral tenure. They own 25% of the minerals as well, so mineral rights are conveyed with the real property in California. What they did in 1990, they partnered with the BLM, and they papered up these mineral leases, and they agreed on a net royalty. The size at the time was at 200 years, so you have a mine life.
That needs to be really qualified under a nice S-K 1300 technical report that we'll work on. But just use approximations, 200 years at Fort Cady, 200 years at Searles, very large deposits. There's that path to be the second-largest global boron producer. Those are the assets we bought there. It comes with a railroad, 30 mi of track that we'll own. It's a water utility plant because they service about 700 residents in the town of Trona, as well as provide the potable water to all the utilities. It was quite the buy.
It certainly sounds like it. I tell you something, my jaw dropped when I read that press release, because it absolutely changes the story, as you said. Once the deal closes, it makes you a revenue generator, and a cash and free cash flow producer, hopefully, which will let you put that cash back in developing Fort Cady. That's where I want to go next. Let's connect the Searles acquisition back to Fort Cady, because strategically, that seems to be where the transaction becomes especially interesting. Rather than viewing these two as separate California assets, how does Searles' existing production infrastructure, workforce, customer relationships, all the things that you mentioned, the rail line and everything, de-risk the Fort Cady part of your story? What could the combined company ultimately look like as a U.S. boron and advanced materials platform?
Yeah, I don't want to get too far.
Yeah, I understand there's only so much you can say here before the transaction.
Okay. I see
officially closes.
Listen, there's a lot of bells and whistles to Searles. There's four real critical minerals out of this asset, and we obviously just talked about two of them, which is the borates and the potash. There's two others that we'll talk about when we present this. If you dig publicly, there's filings out there, but it's good. It is a critical minerals platform. 5E, we have the borates, the boric acid, we have the calcium, so the ability to produce calcium chloride as well as gypsum, and then we have a lithium chloride stream as well. I think we have a $750 million NPV on 130,000 ton boric acid. So that is the business. Listen, I think from an investor, it was a single project binary. It's going to cost us $435 million of CapEx plus operating losses, execution risk.
There was a lot there, and we're 41.5 million shares outstanding today. I think anyone who looks at this views there's a real dilution risk here with Fort Cady. I think now you layer in an operating asset that we issued. When we put out the announcement, we didn't give a lot of details. There's a fiduciary out in bankruptcy, so the details are coming, but I think people have started to figure it out, and it's why the stock has run here.
The economics and the IRRs on this to make us go do this and just issue the paper plus some stock from some cash here, it improves our economics, and I'm used to doing base conservative business, just the V-Bor, the sodium sulfate, and the salt. I haven't even turned on the optionality from the other critical minerals. For me, you put the two combined, there's no longer that dilution risk of $130 million in equity capital needed. It's going to be a much materially smaller number.
Absolutely. You've mentioned a little bit about the boron market in general, but I just wanted to maybe dive a little bit deeper into it, because I don't think people still don't appreciate how critical of a mineral this is. Boron was added to the U.S. critical minerals list in 2025. Following this transaction, you're going to be one of the biggest North American producers of borates in the United States. You mentioned price movement. You mentioned 5% growth in underlying business. What is the strategic importance of the material that the USGS actually put it on the critical minerals list when it comes to defense and energy? You mentioned agriculture, advanced manufacturing.
How does all of that fit together, and how does it position 5E when you talk to customers and the U.S. government, which I'm sure you're still in discussions with, given that you do need the capital, although much less of it now, to turn on the Fort Cady project?
Yeah. I was hoping boron would've been added as a critical mineral in 2022. It got added in 2025. It's pervasive across so many critical applications, our food security, our defense. Great example is boron carbide is the third hardest material on planet Earth. That's what they use to make Kevlar and tank armor. Again, that's a Chinese-dominated supply chain. Ferroboron, we've had success on the bench here identifying the path to produce ferroboron. No one in the United States actually produces it here today. It's all overseas. Again, a Chinese-dominated supply chain, though not on the upstream. The boron upstream piece is obviously there's not big boron assets in China. What China is to rare earth, Turkey can be to boron.
So again, highly concentrated supply stream coming out of Turkey, with a producing asset here, and that's Rio, and very few substitutes and very few other producers that can come online. I think the U.S. government got it right. I think we're seeing it now. There was always a really good market study report that Roskill, back when they exist, put out, and I think the report was done in 2017. That team is still together, but they've come together under Project Blue. The boron market was in a deficit as of January this year, per the report. That's not going to change because there's no other production really coming online. I think what does that do to price? The price is going up. It's a function of supply and demand, and I think we're really in the first inning of the boron game.
That's good to hear from your perspective. Obviously, customers of boron are thrilled to hear the price is going up.
That's why we had, with Fort Cady, a ton of interest on getting those HOAs. Those customers were trying to put in place the commercial economics then because they understand they're having a difficult time getting product. When you look at the underlying business here, a lot of these industries, there's no substitutes. To make LCD glass, you need boron. There's five or six different ingredients, soda ash one of them, some lithiums, and boron and sand and silica. Right? It's pretty simple. Though a very complex manufacturing process, there's no substitute to boron. I think from a supply risk, you got two global suppliers. That's it. I think it's a critical mineral. It's finally been realized as such. It's very subject to supply and demand, and there's not many games in town.
Yeah, absolutely. The resource scarcity, I think, is the biggest takeaway here. Unlike lithium, there's probably 150 publicly traded companies that are all looking to bring on lithium capacity. There is nobody doing this in boron, or very few that I'm aware of. All right. Well, let me finish by giving you the floor for the remaining few minutes to make the last elevator pitch, if you will. How has the Searles Valley acquisition changed the opportunity in front of 5E? What do you think investors may still be underappreciating about the company? Obviously, the stock has run, so some of that underappreciation will be going away, but it's still not where it could be, I guess, given the size of your resource and the PFS, the NPV value of just the Fort Cady. Forget about the Searles acquisition.
Yeah. As soon as this closes, we will schedule a call. We will walk through the opportunity. There will be a presentation with a deck. There will be a detailed press release. We have been in the war room since late June on this. The reason they were in bankruptcy was predominantly tied to California CO2 obligations on cap and trade. That has been resolved. It has actually been settled here in bankruptcy. They owed $76 million to the state of California, and that is being discharged with bankruptcy. I think California is a very unique, complex state. We have operating experience. We understand the state. We understand the regulators. Listen, the same bodies, EPA, San Bernardino County, the Lahontan Water District, the Mojave Air District, the EPA Region 9 out of San Francisco, all of our regulators are their regulators. So we understood this asset.
We came there, we visited, and we fell in love. Under the radar asset. They have been private, kind of lurking in the shadows. They are 40 mi from Death Valley, the way the southwest tucked in. They have been private, so no one knows about them. The world is going to find out how amazing of an asset this is. I just think it is going to be a game changer for 5E. We are going from a development asset to a producing asset in a span of two weeks. Our workforce is sizing up. There are 250 people that are going to become part of our organization. We are 25 today. We were as high as 60, so we know how to make this transition.
It is going to kind of flip the script, and really, I think we are an undervalued company today, and I think that investors are slowly, as they do the work, because it is complex, but waking up. We will spell that out kind of one by one here in the coming week or two.
Great. Thank you, Paul. Paul Weibel, CEO of 5E Advanced Materials. We appreciate your participation today.
Thanks. Have a great day.
Thank you. Thanks as well to everyone tuning in. More information, research, and other materials on 5E Advanced Materials are available at www.watertowerresearch.com. If you would like to submit additional questions or arrange a meeting with management, please use the conference portal. Our next WTR Insights Conference session is about to begin, so please stay with us. Thank you.