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

And we're live. I see some people entering the room, so I'm just going to give it a few seconds here for others to trickle in. Hello, everyone, and thank you for joining us today. I'm pleased to welcome Paul Weibel, CEO of 5E Advanced Materials, to discuss the company's recent developments. As this is a live event, please feel free to submit your questions using the chat box in the bottom right corner of your screen. I'll do my best to incorporate them into our conversation. For any questions we don't have time for to address, I'll make sure Paul and his team receive them after the event so they can respond to you as soon as possible. For those of you that need to catch up later, the session is being recorded, and the replay will be available shortly.

Paul, thank you for joining us today. We're going to be touching on the recent news. Kenneth Hoo appointment appears to be a significant addition to your commercial team. Could you walk us through what particularly impressed you about his background and why this was the right time to bring someone of his caliber onboard?

Thanks, [ Kyle ]. Yes, for Kenneth, once we hired Mark and we brought Mark in, asked Mark, what are the resources he needs just from a -- as we build out our sales and operating plan. And Mark's first and kind of only request has been I need -- one, we need to target Asia. 60% of borate demand comes out of Asia. We need to have someone on the team that ultimately is working while we're sleeping over here. And I got the right guy for the job, and that's Kenneth. I had the chance to correspond with and speak with Kenneth. Technically very sound, understands the market and has the relationship similar to how Mark has the relationships in the U.S. And between Mark's skill set and experience and now teamed up with Kenneth, we now cover 80% of kind of global borates demand and as we look towards tapering up offtake agreements.

Excellent. Now correct me if I'm wrong, but the APAC region, particularly China, has historically been dominated by state-owned enterprises in the borax sector, correct? So how does Kenneth's experience and network position 5E to effectively compete and differentiate itself in this market?

Yes. I don't think it's just China. I think you need to look at the entire APAC region, and that goes to Japan where there's LCD manufacturing of the specialty glass. That's Taiwan as well in addition to China and India. So there -- it's really the region. And if you just look at the CAGRs, you're in like mid-teens growth rates there. And as that grows, it's just a really big market, and we needed to have a presence which is why we brought on Kenneth.

Excellent. So borax has various applications. You specifically highlighted the specialty glass market in this latest press release. What makes this segment particularly attractive for 5E?

Great question. With the glass, right, whether it's LCD or Gorilla glass that's going into phones, they're going into consumer products that are of high value, right? And you need a quality glass product. And so as you think about it, we're kind of getting real specific on customer segmentation. We have 90,000 tons to sell at the first commercial phase, 270,000 for the second. And we can be pretty selective about who we do business with. And I kind of use the old adage. There's about $0.02, $0.03 of boron in every iPhone, right? It's still a $1,200 iPhone regardless, right? So there's -- and it's critical to the phone. So I think we want to be -- have customers that are making those high-end products, and they're also bankable customers. And so that's where the focus is.

The press release also mentions targeting regions that represent the greatest returns. Can you share your perspective on the pricing dynamics and margin potential in the APAC specialty glass market compared to other regions? Like you just touched on a couple of pennies per thing -- per screen.

Yes. You broke up a little bit on my side. But I think the question...

You want me to repeat?

Yes, if you could. That would be great.

I can repeat -- no problem. Let me -- yes. So the press release mentioned targeting regions that represent the greatest returns. Can you share your perspective on the pricing dynamics and margin potential in the APAC specialty glass market compared to other regions?

Yes, definitely. Okay. I follow now. The -- obviously, it's driven by the CAGRs, right? Asia is the market that's growing, that region. And if you look at borates demand in the U.S., that's growing 4% to 5% consistently. And then when you start to look at Europe as well as South America, Europe is kind of flat to down. The 2 larger borate players are fighting -- have been fighting kind of for market share there. It's not growing as robust as we see Asia and the U.S. And then South America is really driven by the crop space, micronutrient. You have cube borax down there. And that's kind of -- there's high barriers to entry. And so for us, where we are, we sit on the West Coast of the United States. We have a competitive advantage to be into Asia or at least similar to our other producing peers on the West Coast. And with those CAGRs and those growth rates, it just makes synergistic sense to be putting trucks on rail down to Port of L.A. and Long Beach, onto a boat in -- across the Pacific to Asia. So I think when you look at that compared to some of -- if you go to Europe, you got to go across the United States or down all the way around South America and then still got to go across the Atlantic Ocean. There's higher barriers to entry than to go into South America. That's the U.S. as well as the APAC regions where we need to focus.

Now can you provide more color on the types of offtake agreements you're pursuing in the APAC region? Are these likely to differ structurally from agreements in other markets?

No, wouldn't structure from other markets. Listen, we're going after the take-or-pay because that's what we need for bankability. And we're going after great customers, customers that we -- Mark and Kenneth both have in their Rolodex. And I think we got to be mindful. We ask for a floor, but it's really much a take-or-pay. It's out of the gate. We kind of have our templates. They've been legally vetted, and that's where we're focusing next.

You also released some news last week. You announced some important operational updates. Could you highlight the key improvements you're seeing at your small-scale facility?

Yes. That was an exciting release, and it's really exciting what we're doing. So that release went out October 21. And I think we're consistently at 1 ton a day, and where we are from a specifications perspective, we've gotten the feedback from customers, we look good. Chlorides and sulfates are ultimately what matter in addition to moisture content and particle size. We -- in late August, we installed a sifter so we can get the -- all particle size are now -- everyone is on spec. Anything that doesn't, there's a reject bag. If -- for that reject bag, we then work that back into process and continue to produce. So I think we wanted to let the market know consistently 1 ton a day, that makes sense from our -- from a liquidity perspective and a burn and continue to accumulate inventory right now. And the other kind of exciting aspect was that we're a colemanite deposit. So it's a calcium-based boron deposit. And what we've seen is actually the boron comes out right away, which is fantastic because that's the high-value commodity we're going after, highly leachable. And what we've now seen is the calcium, which is also kind of intermingled with the boron, has kind of lagged, but it's now gotten to a point where we're ready -- we need to produce gypsum and we need to remove the metal salts. And then as we do that, we will go back down hole with fresh HCl. And so one, as we kind of assess calcium chloride as well as gypsum, we now have good samples of representative calcium that we can kind of use for our assessment of gypsum and calcium chloride. And it just demonstrates that process expertise now and kind of that next phase up. It also is encouraging to see that the calcium did lag and does lag the boron because ultimately, there's an additional cost attributable to processing the calcium. So as -- if we could, we'd just be mining boron all day long, but that's not what we're going to be working with. We have calcium we got to work with as well as metal salts. And so all that information is being fed into the trade-off analysis we do. We are kind of running -- we are very much on a parallel path right now between -- we know what we're going to do with boric acid. It's cold crystallization. And then we also continue to assess, okay, what's the best way we get down to the lowest cash cost. And right now, actually, both gypsum and calcium chloride yield a cash cost right around low $600s to $500 per ton on a BA basis. And the trade-off is going to be CapEx. The decision is going to come down to, hey, what's more expensive? And so continue to work with Fluor, our EPC firm on that, and feel good. Like we have optionality here. And this will just be -- we're looking at phase 1, but then we know we have phase 2. And we can kind of always be -- once we've done this homework now, we can obviously be assessing the market as we then go up and go up to 270,000 tons of boric acid. So really exciting, starting to build some inventory here, and it was -- I wanted to let the market know on that.

Yes. You mentioned in that update about improvements in production rates and quality. Is that rather important, these metrics when you're looking to secure further offtake agreements?

Yes. No question about it. And listen, I think with -- and this is where Mark is the expert. But for specialty glass, the chlorides need to really be -- sulfates need to be low, but chlorides also need to be low. Because the chlorides ultimately will impact the equipment of the tanks that make all specialty glass. So getting them down was just really critical. And so feel really good where we're at right now, and we've dialed it in. So it's good.

Last question on that press release. It also mentioned securing a tax exclusion agreement for lithium-related capital equipment. Can you explain the significance of this? I believe it was $900,000 in potential savings.

Yes. So this will save us -- and I kind of tie into here, right? We -- the focus to date for at least pre-FEED engineering has really been on the boron and the calcium side. If we're going to produce gypsum, we're kind of like at 1:1, maybe a little bit less to calcium chloride. But the calcium chloride market is ultimately 30%. We would look to offtake into 38% solution. And so that's -- you're probably about 197,000 tons of 38% calcium chloride. And so we know we're at like low $600s on to high $500s on a cash cost basis right now. And so as we think about like we will be doing additional homework on the lithium side here. It's in solution. We know it's there. And we really do want to figure out how we can monetize that because that ultimately gets us down to a mid- to low $500s cash cost. So it's that next layer down. And so that's -- it's a smaller component. And so what we'll do is we'll actually look at -- as we think about any CapEx attributable to there, this helps us save some money. And I think it just demonstrates the state of California is really, really supportive. They have a program where they basically -- use tax in California is 7.75%, which is high. And if you have to buy $10 million of capital equipment, 7.75% of that is use tax. And so we now qualify that we get a full exclusion. And I think California has been doing a great job of really -- them and Nevada is really that critical mineral hotbed here. And I think it's a program they offered, and we applied, worked through and got the final agreement and got an award. So excited.

Right. I see questions in the chat piling in. Individuals that came in a little late, we are taking questions here. But upon registration, many of you have submitted questions. So I'm going to start firing off some of those. An individual is wondering what is Mr. Stefan M. Selig's current involvement or position, if any, with the organization?

So Stefan rolled off the Board. That was -- he was on a 6-month term. That was part of the restructuring support agreement. That's in kind of the rearview mirror. Stefan came on board as part of that process and was a great value add to the Board, but rolled off and now kind of Board -- we had a couple of changes where we then brought on Barry and Bryn, and both of them are -- have already added tremendous value. So yes, that's -- we wish Stefan the best.

Another individual was wondering if you could outline the company's plans and potential opportunities within the nuclear power sector supply chain though. And maybe I'll add on to this because I didn't know -- we're talking about boron here. So maybe tie in why is that nuclear power sector important for boron.