5E Advanced Materials, Inc. (FEAM) Earnings Call Transcript

Great. So as people start popping in, I'll say good morning, good afternoon or good evening, depending on where in the world you're signing in from. It's quite an international audience today. So thanks so much, everyone, for taking the time to join us. I'm very happy today to feature Paul Weibel, the newly appointed CEO of 5E Advanced Materials, for our market update. Good evening, Paul. How are you?

I'm good. Pleasure to be here.

Awesome. So our format for today's event, Paul is going to walk us through a brief presentation followed by a few short questions from me, and then we're going to throw it over to the audience for questions. So on the bottom right of your screen, you'll see a chat button. Feel free to open it up. I'll put a message in as soon as Paul starts presenting. Please enter your questions at any time during the event, then we'll get to them as soon as the presentation component has ended. If for whatever reason, we don't get to your question today and it's possible because we're always limited by time, I'll be sure to have the 5E Advanced Materials team get back to you as soon as possible. But you're not here to hear from me, so I'll throw it to Paul to begin our presentation today.

Thanks, Romeo. I appreciate the time. As the introduction alluded, Paul Weibel, Chief Executive Officer of 5E Advanced Materials. I just want to use this as an opportunity to introduce myself. I've gotten to know many of our shareholders as well as our stakeholders, covering analysts over the last 3 years. I joined the company in May of 2021, came in as the CFO and have been with the company for 3 years. Currently do reside in Southern California. And I just want to kind of share why I joined 5E. And I really joined 5E as -- when you really start to peel back the layers of the onion on the commercial prospects, you can draw a lot of analogies to where the boron market, which is kind of very much opaque and unknown, was to the lithium market 15 years ago. It's an oligopoly structure. There's 2 major global suppliers control about 85% of supply. Of which, 65% is offshore, not in the U.S. And from a commercial perspective, boron very much was kind of your traditional glass ceramics, not a kind of in vogue commodity, and through many future-facing applications such as wind turbine blades and fiberglass, ferroboron and permanent magnets. And then compounded with defense applications in the trends we're seeing to kind of shore up America's supply chains, defense became critical for boron. And so you have an oligopoly structure, and ultimately, a really sound strong kind of exponentially grow pull-side demand thematic, and that's something I wanted to be a part of. And so that's what got me excited. That's why I joined the company. And much of that kind of initial theory, I've seen play through over the last 3 years. And also, to get a project built at the commercial scale up and running in Southern California, having those permits in place was something I wanted to be a part of. And so there's this good historical data that showed that the deposit was leachable. It's a colemanite deposit, calcium-based, technically very fundamentally sound. And that's why I joined the company, and it's been a fun ride watching it grow to date. So I think with -- that's a little bit about me. With my appointment, there was a couple other organizational changes that I just want to kind of highlight here. I think, first, I want to thank Susan for her time, her dedication and their effort. Ultimately, she got EPA across the line, and we got -- under her leadership, we had first production. We also are making a couple other organizational changes where Josh Malm, who was an Interim Chief Accounting Officer, third-party consultant who's going to come in and now assume my role as Interim Chief Financial Officer. Josh, over the details of the company, will handle all internal finance and accounting functions and ultimately knows the business inside and out and comes out of oil and gas. We recently hired Rod MacLaine, has over 30 years of EPC construction and engineering experience. He's a true mine builder and ultimately will oversee our FEL-2 engineering program, the FEL-3 detail design and, ultimately, the commercial build of our Phase 1. [ Lonnie Bailey ] is still here. Ultimately, has the Newberry site locked down as plant manager, overseeing all the day-to-day operations at our facility And then J.T. Starzecki's role will go from Chief Marketing Officer to Chief Strategy Officer, whereby he will oversee our commercial efforts as we look to the qualification phase, our government affairs and, ultimately, investor relations. And then on the Board level, we made 2 new appointments. One is Barry Dick and the other is Bryn Jones. Bryn is an industrial chemist with over 20 years experience, has in-situ solution mining experience out of the uranium space. And Barry has over 25 years of investment and banking experience. And both -- we're looking forward to their governance and guidance as newly appointed Board members. And then after, so we have 2 directors rolling off as well. Stefan Selig's 6-month term has -- will be ending here on Tuesday. And acknowledging Stephen Hunt for his 7 years of service will be rolling off the Board at the end of June. And both Stefan and Stephen were a pleasure to work with, and we appreciate their efforts here and wish them the best of luck. What I want to do next is just kind of recap some of the critical milestones that we've seen over the last couple of months. Obviously, for a long time, there was -- where does EPA stand? What's the status of the permit? And ultimately, in -- right before the U.S. Thanksgiving holiday, we got our EPA approval across the line. And at that point in time, team kind of huddled up and said, okay, we really need to put a good 3 to 6-month time line out in the marketplace, and we need to set an expectation of what we're going to do on a go-forward basis. Ultimately, we knew that the well field was done. We know historically, those wells take 30 to 60 days to condition. And so knowing that and having that in mind, we commenced mining operations on New Year's Day. The team got up. They didn't watch the [ numbers ] parade. They were at site, and they were commencing operations. We knew that, ultimately, during that 30-day period, we could take some of that initial PLS. We could send that to a lab, run that PLS on the bench and basically just double check, make sure we can get to commercial product. Colemanite is a superior resource. And in turn, we hit that check mark. Product looked great. And so while we were also doing that, we had a small amount of incremental CapEx to complete that came in right on budget kind of as expected. And during that time, ultimately, those wells continue to condition. And then that really kind of led to the completion right at the end of March. And the back end of the plant, which is really where we produce our boric acid and we'll make our gypsum, that started up April 1. And so knowing that was the milestone, that was the road map that we're going to outline, we then says, okay, once we're operating, what are we going to do? And so first is let's produce boric acid, right? And we just -- we got to get that PLS to the crystallizer. We need to get it on the belt filter and, ultimately, the dryer and out the other side. And then we got to measure, hey, what does that quality look like? What's the particle size? What's the moisture content? And ultimately, what does that impurity profile look like? Because while boric acid is a commodity, what its uses are, are very specialty chem in nature, right? They're going into specialty glass. They're going into high-end products. So knowing our customer specifications is a critical aspect in ensuring we're going to be successful as we go through the customer qualification process. And so once we had boric acid, the focus and what we've been working on today has been let's get that on spec and meeting our customer standards. And then once we do that, we've got to run to rates, right? And so where we are today is we are very, very close to that on-spec product. And so once we have our on-spec product, we start customer qualification and we run to rates. And so that can kind of lead me to the next slide where we kind of -- let's talk about what this next 30-day plan is, what's the 60- to 90-day plan and then 6- to 12-month plan. And so I think first is we're going to send product to customers and it's going to be KG samples out the gate, and then true tonnage is going to get put on a boat at the port of LA. And it's going to get shipped to our customers for our future customers for real-time production. What we've done today is we've had conversations with our future customers' quality group. We have a full lab on-site in Newberry Springs. We understand the procedures that those KG samples are going to be going through to look at the impurity profile, to look at the moisture content, and we've now replicated those procedures on our process. So we're kind of going to use a test, take a test before we take the real test and just be practical and thoughtful about that process. So that's 30 days. That's the goal that's going to happen. In the 60- to 90-day process, listen, we've engaged Fluor. They're going to be our EPC through FEL-2. We're going to continue to moving down that, which is really, ultimately, first prize is commercial production of 90,000 tons. And so while we do that, we're kind of -- we continue to get lots of really good data. And we're going to go through an optimization exercise. And we have our technical report summary, which has our economics, but we want to optimize that. We want to make it better. And so we can break that down, this optimization exercise, which is a 2- to 3-month exercise, into 4 pillars, right? And in all those pillars, the foundation of those pillars is an economic analysis, right? How can we get our cash cost down? The first pillar is mine plan, right? Today, we have 4 wells. We are -- those wells, our deposits sits about between 1,300 and 1,500 feet below ground surface. So those 4 wells, they're coming in contact with 800 feet of ore body, 200 tons [ for ]. From there, the name of the game is how can we increase solution coming into contact with that deposit. And so the mine plan really is taking pages out of the playbook of oil and gas. One horizontal well can run for thousands of feet. So -- and if you think about it, what's in our model is a lot of wells and there's real cost on the sustaining CapEx side. So we need to get and design a mine plan that isn't just -- isn't vertical. Yes, you're going to have to go vertical to a point, but then you're going to dovetail and you're going to probably look at a toe to boot whereby -- or you're heel to boot, where your heel is deeper, and you get the benefit of gravity and ultimately running the strike of the ore body to optimize contact. So that's kind of pillar one. Pillar 2 is what's the optimal crystallization process. So today, all of our results align with the historical data. We're going downhole at 140 degrees, and we're coming up fully saturated in solution at after 24 to 48 hours of consistently 5.5% to 6% head grade. What the process entails is after we pull that solution above ground, we're going to our crystallizer. And we use an evaporative crystallization process, whereby we will boil the water, evaporate it off, and that in turn increases our concentration of boric acid in solution to about 30%. From there, it runs over our belt filter, washes, filters out any impurities, goes to our dryer and ultimately our bagger. We know the chemistry math equation tells us that we cannot increase any concentrations. The resource like is phenomenal. Those results are very, very good. So okay, can we take a look at actually potentially transferring the concentration effort from an evaporative above ground to potentially downhole, i.e., can we inject hotter solution to create a more robust aqueous chemical reaction downhole to, in turn, increase concentrations up to 20%, 25% downhole, whereby we potentially modify our crystallization method to a chilled crystallization, right? And then thinking about that, how does that impact our OpEx and our CapEx? Because for example, the CapEx right now, our crystallizer is [ half story, half slate ]. It's a long lead item and it's expensive. It has high nickel. So ultimately, if you do that reaction downhole, you will potentially neutralize your acid. Thus, in turn, potentially changing your crystallization to chilled, which could improve your OpEx while also simultaneously reducing your CapEx. Pillar 3 is really kind of is the cousin of pillar 2, which is what's the power and what's the utility that we're going to look at to really create the optimal OpEx profile? So listen, one of the reasons I also joined, from an infrastructure perspective, 5E is in a really good spot. We sit right along major transmission lines to SoCal Edison. There is not one, not two, but three major transmission -- natural gas transmission lines. Of which, one goes right through our EIS, EIR boundary. And then the third aspect of that power is we sit in high desert, right in California. There's not a cloud in the sky. Most days, it's 365 days of sun. Can we look at ultimately paired renewable power with either a gas or electric where, one, we're reducing carbon footprint, and two, we have a free source of energy? So what we want to do is based on whether it's evaporative crystallization or chilled crystallization, what's the best way to be thinking about the power mix, right? And what is the best economic outcome and factoring long lead items and timing for all that, that kind of gives us the best outcome? And then the fourth pillar is ultimately, hey, what's our by-product mix? Today, we're going to produce lithium and a gypsum by-product. We like the lithium, but I think there's better value-added by-products that we could potentially be looking at. And we will look at on the -- with our deleterious elements and our calcite, right? For example, calcium carbonate is a by-product that hasn't been considered that we should -- we're going to take a hard look at. Also, we have magnesium as an element that it's not a lot of -- a ton of quantities, but is there a process that can be deployed on the by-product side that really actually accretively boosts MPV and gives us a better economics and reduces our cash cost for the long haul? This is the next 2 to 3 months, what we're looking at as we kind of take the steps to progress the FEL-2. And then ultimately, that 6-month time line is definitely FEL-2, right? FEL-2 will result in a capital estimate that's plus or minus 25%. It will also get us an OpEx estimate that's plus or minus 15%. And this goes on why we're further progressing our customer qualification process. I think, at this time, we also will continue looking at transitioning the qualification process to offtakes, right? We want to ultimately look at the debt piece on the back of that FEL-2. And so how can we be getting better by-products, getting a really solid fundamentally sound FEL-2 program, and then kind of opportunistically looking to -- as we're not -- all products not going to go to customer qualification, hey, is there anything that could be sold in excess into the market as a credit to our operating costs. And so that's kind of like where we look from that 6- to 9-month time, and then there's obviously ongoing efforts, vigilantly pursuing non-dilutive sources of government funding. From our funding strategy, it has not changed. We have -- our liquidity disclosures are robust. They're well known. And ultimately, where we stand today is I personally believe the business is undervalued, right, where our stock is trading close to book value. I don't think it should be trading close to book value. And so from a financing perspective, we're going to -- we have good applications in on -- through the DoD, and there's a DoE loan grant application we have applied to, and we continue to progress them and work them. And so we're very mindful and very thoughtful about dilution. And I think in the interim, like we'll do bite-sized chunks. And that's kind of what you saw more recently with the $6 million in additional notes. I think timing was -- we had kind of agreed to terms, and then one of our analysts upgraded us to a buy, and stock ripped, but the deal was kind of already done. So timing wasn't all the best, but those are things you can't always predict, and we appreciate the buy upgrade because that kind of mirrors our sentiments of where the company should be going. And so I think that hasn't changed, and we continue to just be opportunistic and be vigilant about the pursuit of the government applications we have in train.

Awesome. I appreciate that very much, Paul. I got a couple of questions on my own, just based on the presentation. But there's one I wanted to tackle just from the audience. It's a combination of a comment from [ MJW Walter ] and [ Raider ] from the chat. They're both expressing just interest and concern at the number of executive and Board-level changes. Looking for you to speak on it, just an explanation, and whether or not this is now a steady executive team that's likely going to hold on.

Well, I've been here for 3 years. And so I don't plan on going anywhere. But I realize that now in this seat, it can be a hot seat. And so ultimately, share price performance, execution on the ground is going to be a function of my longevity here, right? And so I think J.T. has been here for almost -- it will be 2 years shortly. I think when you go through a going-public process and a migrating, you're going to build a team. There's a lot of unknowns. We re-domiciled. And so with that, not everyone is always going to stick around. And there's been a lot of good contributions and good team members that have come on and added value to 5E. And ultimately, that's going to change kind of over time. But I think with myself, I moved my family here from Pennsylvania on the East Coast, and I'm now a West Coaster. And so I'm not going anywhere, and I'm really pleased with the team. We have -- [ Lonnie ] has been here almost 2 years. Rod is a new hire, but Rod is kind of a function out of where we're going in the future. And so I think -- I know we've got a great team, and there's good things to come.

Awesome. Now if you don't mind, I'm just going to get into a couple questions. And I know I promised folks on the chat, I'll get to your questions answered. But please do keep those questions coming. We're going to get to as many as we can today. So what I'll add, just based on your presentation, is I'd love if you could expand on or just give me and the audience a bit more information about 5E's process for customer qualification.

Yes. So it's exciting. I think -- so what we'll do is here, we're talking KG samples. We already have our first super sack, but that's not the first to go out the door. The first to go out the door will be KG samples. And that once they're shipped out to said customer, it's about a 30- to 45-day process where they'll take those KG samples, and they're going to run their tests on a bench and in the lab. Once we clear that hurdle, we're talking 100 tons of product, right? And so that's what we're kind of those -- the super sacks products, they're being kind of earmarked for that 100-ton shipment. And so that's -- and then you're talking, listen, it's got to go on a boat. It's got to go overseas. And it's got to run through a live manufacturing environment. And that can take probably 60 days, right? So you're talking about until you clear and you're officially approved as a vendor, it's probably late summer. And then while we do that, after we get through the lab aspect, we're going to start talking take-or-pay offtakes.

Okay. Great. And just jumping in, there's a question from the audience that just fits really perfectly as well. I'll ask that as well. [ Adrian Palmer ] asked, when do the customer quals start?

That's that 30-day time line. Like from here, like we're close. We are very close to commercial on-spec product, and it is exciting. We're certainly going to start teeing up some videos. Like you see the -- as you look at the belt filter when you're on the platform, it's coming out in solution, and it's going out and it's getting kind of pushed down pneumatically down the filter. And it's big, like it's like 30-feet long. Like every bit of 10-feet wide, and it's getting washed. And as it washes, it vacuums. And as the vacuum hits, you see like a white layer of -- I mean, you don't see snow in California -- in Southern California very often. They've been mistaken for snow, and it looks awesome. And it's like, wow, that is really impressive. That started at 1,500 feet below ground, came up, went through a chemical plant, was evaporated, solution boiled off, and now we're filtering out the impurities and what's left is boric acid.

Awesome. And one more question for me. With -- I know the significant anticipated relationships with various branches of the U.S. government upcoming. Curious if you could just expand on the company's plan for gov affairs?