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

I'll say good morning, good afternoon, good evening, depending on where in the world you're logging in from today. I think there's at least 10 time zones represented today. So thanks, everybody, for joining me. I have with me today, Paul Weibel, CEO of 5E Advanced Materials to discuss the company's recently published pre-feasibility technical report. Paul, how are you?

I'm great. Good to be here.

Awesome. So here's how today is going to work for the folks in the room. I've got some questions today for Paul, but this is an interactive event. So there's a chat button in the bottom right of your screen. Please do feel free to ask questions at any point during today's event. I'll try to get to all them. If for whatever reason we don't, I'll make sure that Paul and MacLaine's team get those questions over e-mail. So with your contact information, so we can get back to you at his leisure. But today's event is also being recorded and will be available for replay probably early tomorrow morning, Eastern Time. It will pop right up in your inbox. It will also be available on our YouTube page and likely soon thereafter on the 5E web page. But let me jump right into the details of the [ protein ] for today, Paul. I know before you get into the nitty gritty of the PFS, I'd love you to just share your general thoughts and impressions on the report, the initial feedback and reception from the market.

Yes. Happy to. So there's been about 18 months of mining data, 14, 15 months of chemical plant data that has gone into this report that really -- we believe it's an outstanding report. Definitely need to thank all the QPs as well as our third-party engineering partners, Fluor, Miocene, our partners out in Chile and our internal owners team that really put all their contributions into the report. I think it's probably table 18.2 in the technical report, really gets into the differences on a traditional Class IV estimate. and what we delivered. And it started with we have a plot plan. We know where our wellfield is going to start, where the header is. We are able to do material takeoffs. We have actual true PLS data that was sent to [ Kemco. ] We have our own independent lab, have been doing tests on that 10 times over. And ultimately, the mass and energy balance that was derived was true bottoms-up based on real PLS. And so for a -- yes, it's a PFS but we think it's much better than that. We know it's much better than that. And I think it's -- Table 18.4 highlights that. And it's a quality report. I think have -- we put out the PEA almost a little over 2 years ago. We are bound by SK-1300 standards. So that was -- mining guides haven't changed. So it took us a little bit of time to get that out. And there was a lot of assumptions at that point in time. And that's all changed now because it's all done on real data, and we've demonstrated that we can mine this. And we have the team that can do it, so pleased. I think the market has liked it. It's a 40-year mine life, and that's 41% of the resource. There's an exploration target, and it does not include additional load claims we've staked and file, which is about another 1/3 of the resource that will get included with the feasibility study. So very, very large multigenerational resource, and we're quite pleased.

Great. Let me get right into the details then. So had $554.80 all-in sustaining cash cost versus that $1,355 average boric acid pricing, you're looking at $800 per ton in operating margin. But with 130,000 tons annually, that's what, $100 million in operating cash flow. So what's driving this kind of remarkable margin profile? And how sustainable is that price?

Yes. I think the first topic on that is the cost structure. And so we knew over the last 2 years that this project needed to be tackled hands down on the cost side. I think that -- and we'll talk about the flow sheet later, but we've changed it up a little bit. We've optimized. It's chilled crystallization today. And so that's why we're at that [ 5 and change. ] And that also includes our logistics costs of about $113, $114 a ton that we're assuming today, and so some of these technical reports, it's a bit of a modeling exercise based on assumptions. And we're assuming we bear all that cost. So you strip that out and you're closer to like $450 for all-in sustaining cash costs. It takes a little bit of time to get to that because you got to ramp up. And additionally, the calcium chloride is on a little bit of a lag because we use the ponds to get there in solution, but that's where we'll be, and it's quite competitive. Additionally, we got there on the fixed cost side by going a little bit bigger and spreading more fixed costs over additional tonnage. When we took a look at the permits, it's permitted for borates. And we got clarification from the lead agency that borate could be defined as boron oxide or oxide equivalent, which was basically gives us permits for 160,000 tons of boric acid. So that's really was how we tackled it on the cost side. On the price side, so I think our first, gosh, 12 to 16 quarters, it's an average boric acid price of $1,250. But remember, our costs are in there. So that's really a netback price of closer to $1,140, $1,130. My commercial team would tell me I'm being too conservative. And because there's supply and demand that really justifies it being at those levels. So yes, I think just to succinctly answer the question, it was really driven off of the variable costs. And yes, I do believe pricing is sustainable as this market is in an oligopoly where demand is growing.

Sure. And we'll get more to the market again in a bit, but I just wanted to stick to the details for a second. So that proposed $435 million initial capital investment generates according to report $3.75 billion in pretax free cash flow over the mine life. It's up 8.6% cash-on-cash return. I'm curious if you could break down for everybody that's in the room, what's included in the CapEx and how it differs from previous reports.

Sure. And that's cash flow only converting 41% of the resource. So yes, major differences are that the PFS dramatically improved CapEx, clarity in that includes COGEN. There was an assumption in the PEA that we would basically procure power at run of the middle everyday rates from an electricity perspective and someone would ultimately finance that COGEN. That's still a very viable option that can come out of the CapEx. We can put together a long-term power agreement in exchange for someone powering the COGEN. That would -- the COGEN with the contingency was about $53 million. So that could be stripped out of the CapEx. That's optionality. But that sits in capital today. On the wellfield side, and this is the other big difference is that Phase 1 on an apples-to-apples basis included 160 vertical wells. Today's mine plan is 27 horizontal wells. And so we had really good data from the '80s that kind of showed based on the porosity and permeability of colemanite where solution would migrate and when that was kind of firmed up by -- we have these tilt meters that basically can track where our solution is moving at any given point in time from above ground. And it kind of aligned with what was in the '80s, and we looked at this. And you know if you look at our -- the area of the deposit, 160 wells for where we wanted to mine was a lot of wells. And if you go into larger phases, it's 2 or 3x the quantity of wells. And we're fortunate in that our geology really is homogeneous, in that it's about 200 feet thick. There's 4 mineralized horizons with the major mineralized horizon being 130 to 150 feet. And we have really high-grade colemanite. And so directionally, we can -- I've been saying this for maybe 10 months, we're taking pages out of the playbook of oil and gas because there's one thing this country is very good at is drilling for oil and gas. And all of our major vendors that we're using on the drilling side are all -- well, they all have operations out of Bakersfield, California, and a bunch of them tend to be headquartered down in Texas. And so that implementing, and we'll talk about this -- some of the initial results we're getting out of these horizontal wells, but they're very good. And the last major difference on the CapEx and some of the difference is ultimately how we changed crystallization. So the PEA included evaporative crystallization. That's how the small-scale facility was actually designed. And given the real high performance we've had with head grade, we've been able to change that and go to a chilled methodology. And so just from an OpEx perspective, that's actually decreased. I think the PEA had 20 MMBtus per short ton, and we're now at 7 MMBtus. So like a material decrease in natural gas usage. Also, you're getting the benefit of that in that, that it's that steam and that gas is also being used to generate electricity. So it's a win-win. So it's -- we've -- to summarize, it's been -- COGEN is now included. The wellfield has gotten significantly skinnier and more efficient, and we've optimized OpEx by changing the flow sheet and crystallization strategy.

Great. I got one last question that's right in the numbers here because I just want to put in perspective for folks in the room. But the PMS shows that you're going to recover the entire $435 million CapEx in under 6 years and then generate just free cash flow for 33-plus years. So my question is, given these cash flow characteristics, I know there's investors that love those long-duration, predictable cash flow assets. Are you getting any interest from infrastructure funds, yield-focused investors, any of those guys?

Yes. We do have like a line out the door of some of the most reputable private equity funds. They've been knocking on the door for the past 6 to 8 weeks, have known this is coming. We were hoping we could get this out in late June. These technical reports are quite a bit of a laborious process that you have multiple groups all incorporating in from geo to process specialists at Fluor to the CapEx team, then you have -- you overlay the wellfield. And all this was kind of going on while we were drilling 3,000 feet of directional wells. So it was a pretty busy time. But yes, there's -- this project has a ton of interest just because of its strategic importance, the boron supply-demand dynamic is really interesting. I've gotten pulled in a couple of market studies, and it's definitely one of those very unique markets, in that demand is growing, but supply is not keeping pace. So yes, from a longer duration, long-term investment underpinned by a very large multigenerational resource, yes, there's interest.

Great. I do want to talk about 5E's market position for a second. Because my understanding is that you'll be producing approximately 11% of boric acid demand from just this single project. So what does that mean to you in terms of how it positions the company for pricing power, contract negotiations, et cetera?

Yes. So that's 11% of the market today. So which continue to grow. So that number shrinks when we come online at commercial. And I think we did have a really -- and that was another piece of the puzzle that was coming in, there was the market study that [ Kline led, ] but they engaged former members of the oligopoly. I think at the table, we had -- and with their collaboration, 130 years of borate sales experience across North America, Asia, South America and the LatAm region and Europe, Middle East and Africa. So we basically covered the globe. And so we had some kind of core base assumptions that [ Eddy ] in Turkey will expand an incremental 60,000 tons. And what we're seeing very much in the market today is supply and demand are at parity. And there's -- I'll cite a couple of instances here where one of the larger players has exited Vietnam. They've also exited India and the market is short, cannot get supply. That's led to some really interesting pricing numbers like $1,400 a ton. Distributors are calling us and like we can't get it. I talked to a U.S. customer. So the other market that has been tight has been the U.S., and that's been driven off of, I call it, tariff arbitrage where obviously, the second largest global producer, U.S.-based, there's tariffs and reciprocal tariffs that any U.S. producer would be dealing with. And so ultimately, Turkey has decided to let's go sell boron where the U.S. producer can go ultimately -- where they have to sell at higher prices. And so let's go also sell that capacity into China so we can get higher netbacks. And so in the interim, U.S. warehouses have been short. And I talked to a producer, this was probably maybe 6 weeks ago, and they were -- they had to buy product from a Canadian distributor at $1,300 a ton. So there's -- listen, the long term -- like this market is contracted based on offtakes. And so -- but if you're not in those offtakes and the market starts to get tight, the spot market can be a really great place to add additional margin. Also -- so just tying back to supply and demand. So we think that's at parity today. And we've also assumed that there's -- the two other permitted projects, 5E being one of them, are going to come online when it's publicly stated, which is about the 2028, 2029 time line. And so you look at that and you're like, okay, there's only five or six sizable boron deposits in the globe, two have permits, three of those are in the exploration stage. You can assume 60,000 tons from [ Eddy, 5E and RILA ] come online when they say they're going to do. And the market is still in a deficit. So I think the -- and then you have the ability where we have our piece and we can start to segment across the various customers, which is how we've already signed up 14 global customers and passed their process.

Great. You've already touched on it a bit, but I know that boron has been designated critical infrastructure by Homeland Security, American Defense, et cetera. And I'm curious in the era of tariffs and -- by American, how do you think the domestic supply advantage translates into competitive positioning for 5E?

Yes. So there's definitely interest in securing all aspects of the supply chain from the upstream to midstream and downstream. And there was -- one of the first executive orders was that mining was now included in the industrial base. And you're going to definitely see additional projects that [indiscernible] is coming online, Perpetua is making a go at it. And so I think there's an emphasis here. In this next 4-year window is in -- I think Biden was all about the green side and clean energy and Trump's all about like we need to bolster up the industrial base. We talked about how the U.S. warehouses have been out of stock. There's -- and I think that just speaks on those three markets, which is U.S., India and Vietnam, how susceptible prices are to supply, demand and utilization, which is really one of the big drivers in [indiscernible] pricing model. And so there's -- what we've done is we've ultimately partnered with different companies that are working to bolster up domestic supply chains. And one side of that has been on the carbide side, where 85% of boron carbide is out of China. And so there's different groups that we've been working with where we can produce that domestically. And given what does carbide go into? It's [indiscernible] tank armor and it's the third hardest material on planet Earth. And so this is just one example of how 5E is kind of playing its part in bolstering up the domestic supply chains and ultimately providing the upstream feedstock. So ultimately, this is -- the boron carbide market for U.S. defense is no longer a market that the Chinese can dominate.

I appreciate that. It's just interesting context. I know you've got 14 customers already qualified through the small-scale facility you got up. I'd love you could just share insights into what the value-add proposition is for 5E to securing these agreements.

Sure. So I think on the -- you can use those 14 as a [indiscernible] or the leading indicator to indicate that, "Hey, there needs to be incremental supply because our phones are ringing." And it's definitely a concerning -- I think the customers are concerned because supply and demand is tight. And I think the first proposition is quality of raw material. We've demonstrated that we can meet the highest specification in the market, which is LCD glass. If you read Section 10 of the PFS, you can -- oh, you can see that we've actually partnered with [ Kemco. ] We sent them to mine solution, and we know exactly what we need to do to achieve our sulfate chloride spec and impurity profiles on the finished product. And there's actually really good pictures in there that detail the boric acid coming out of first stage crystallization and then a redissolve and the second step of crystallization, and it looks awesome. So I think achieving product quality is of utmost important. Second is that we can be a reliable long-term supplier. And I think this resource is massive. It's really of high quality of strategic importance to national security, and it will be here for many, many generations to come. The second -- and we've -- so we really did a great job focusing this in the PFS, and it's where we'll continue to focus our efforts is on the cost curve, and that's tackling variable cost. And ultimately, our goal is to be second on that cost curve. It's a cost curve of 2. Yes, so -- and I think there are a couple of other smaller boric acid producers, but we hear time and time again from various customers and market [indiscernible] like they struggle with the quality side. So yes, that's where we'll provide the value.

I appreciate that. I want to get to the operations and scalability for a second. So one thing I found interesting in the PFS is that in-situ leaching approach where you're achieving 81.9% recovery with really minimal surface disturbance. So I'm curious if you could just give your take on how this -- the tech advantage translates into cost savings, environmental benefits compared to the more traditional approaches.

Sure. So it definitely comes back to colemanite and the geology and that I think that you have the 4 different types of ore most common where borates are found, colemanite, ulexite, tincal and kernite. So colemanite is, I describe as the Mercedes-Benz of mineralization for boron. It's a calcium-based boron mineral, and it's just really easy to leach. We saw that in the lab in 2018, and we've seen that real time in the plant. So having that is really how we can get that 81.9% recovery. Additionally, from an environmental perspective, we're low touch. There's no open pit. There's no tailings dams, just a 6-inch borehole in a mill.

There you go. I want to talk a bit more about those horizontal wells because the conversion of those intercepting 3,000 feet of that colemanite is obviously an operational breakthrough. But I'm curious, how does it -- and I got to ask you about timing. How does it impact your confidence in that production ramp-up to get to that 130,000 tons annually, I believe, by late 2028?

Yes. There was definitely some reconciliation that needed to occur between what's the anticipated feed rate that the plant is going to achieve and what is the quantity of wells on a gallons per minute basis that will ultimately need to be established to feed that chemical plant. So we'll use this as an opportunity to talk about the horizontal wells. So we took -- so we have four injection recovery wells today, and our mineralized zone is about 200 feet. So we're coming into contact with approximately 800 feet of pay zone. We took two of those wells. And let's talk cost. So each of those wells was about $900,000. So it was $3.6 million to install those four vertical wells. Now we get the benefit of actually utilizing the vertical piece where we've sidetracked off of those two wells. But that still took a decent amount of time because it was a complex drilling program to kind of -- you need to -- your initial hole and kind of breakthrough of your vertical well needs to be larger because you're going to put a flexible casing through that. So it needs to be wider, and it actually takes a decent amount of time to drill. But it's not an apples-to-apples comparison, but it's close. $1.5 million, we've now outlaid and we now -- instead of having -- well, it's two wells. So 400 feet of mineralization, we now have 3,400 feet of mineralization. So on a -- how much more bang for your buck does your drilling dollars get you? And also to note that we're able to do logs along -- geological logs along the way and be looking at our -- what's actually coming out of the ground, like one of those wells is like a perfect 10 out of 10 score and is in high-grade colemanite, the whole entire way. So it's definitely the way this deposit needs to be mined. And I think like we've known that has been the case. And we really had like ourselves all amped up out of the gate and we're probably like a little bit too bullish. And so like we expect like instant gratification when we started to recover PLS. And so right away, I think -- so we've just completed today our -- we're almost done our fourth cycle. So we're very much like in the early stages of this. But I think after 2 cycles, our boron PPM was about 3,000. And just for like simplistic calculations, you take 3,000 divided by 10,000 and then you multiply that by approximately 6, and that will give you sort of an indication of what your head grade is. So at 3,000, divided by 10 x 6, we were at like a 1.8% head grade, which isn't good. And like -- I was like -- the team we were all like what's going on? Well, then we did cycle 3. And we just like clicked, and we got 20,000 gallons out, 6.5% head grade, like 11,700 PPMs boron, 91 degrees. And so there's temperature that we can use to our advantage, too. And it was just really good. We're on our fourth cycle, and we're not all the way done yet. And so we're kind of mid- to high 5s. So like really, really good initial results. And so we'll continue to operate this. We got to -- more customers want products. So we are -- that facility will operate. And ultimately, as we think about the debt diligence, like we need to run this wellfield, so we can -- there's no questions that are left unanswered when we go through the project finance diligence process.

Okay. I appreciate that. I know the technical report only covers Phase 1. So I'm curious if you can give the folks in the room a sense of the expansion potential. So I'm talking of the additional tonnage, but also those value-add boron derivatives. And what does it mean for the investors in the room?

Sure. So -- and we're definitely ahead of the curve on this one because we've been able to actually incorporate some of our testing to this or incorporate some vendor testing while we're kind of going through the pre-FEED process. But customers, it's well known, they'll pay -- so boric acid is 56% B2O3. Customers pay a premium for more B2O3. That's the boron component, and that's what gives glass its higher strength and it's heat resistance. And that's where the premium chemical properties of boron lies. And so we're looking at product mixes with higher B2O3 content, which would drive you ultimately up to oxide, but there's potentially a blend of metaboric acid, which would be 80% B2O3 that customers will pay much more than the regular price of boric acid. There's also a value proposition there if we could deliver that. We're not -- that's not included in Phase 1, but that's something that the team has bandwidth to be working on in parallel. Additionally, we can go bigger. This is a very, very large resource. And again, 40-year mine life, 41% of the resource, we can go 2 to 3x larger, and the resource has the capacity. So I think really good economics with Phase 1, and we can go bigger once we deliver Phase 1.

Great. I do have some question on risk management, but I just while we're on topic, Tate Sullivan from the chat asks, what are the next steps in the project finance diligence process?

So we need offtakes. That's like front and center right now. We have 18 super sacks that are going out probably end of this month, early September for a 5-week trial for glass tank testing. And then the next phase was like we needed to get these capital and OpEx numbers so we can really know how much debt we can take on and ultimately set the table for offtake so we can demonstrate that we -- to a lender's perspective that we can pay back all of our cash costs, clear margin and payback principal and interest. So that's really the priority here on the go-forward basis is the offtakes need to come.

Great. One question. So I know you've been operating that small-scale facility since April of last year. It's given you a real operational data for the pre-feas. What have been the learnings you've had so far? And then how do they give you confidence to scaling up to that real heavy commercial production?

Sure. So -- and shout out to our lab, our chemist, David has done a great job because we've tested so many different aspects of the plant. It started -- and the lab data really kind of tells the story of all the lessons learned. And out of the gate, 18 months ago, it was all about the wellfield. "Hey, do we get that baseline head grade that aligns with what amount they saw in the '80s. And yes, it does. And so wellfield got put together and came along. And it was -- and every -- all the data very much aligned. It was 30 to 60 days to condition. Obviously, horizontal wells demonstrating that, that can happen a little bit sooner. And then kind of right around May, when the plant turned on, it became all about how do we get on spec. And that was a finicky process. It took a little bit of time, but we got there. And then there was a period where it was all about gypsum, "Hey, and we realized we needed to put more sulfuric acid into the calcium stream to precipitate out more gypsum." And so I can say that then that -- all that data was kind of reinforced by our OEM testing we did in conjunction with pre-FEED engineering, which is another reason why that PFS is bigger and better than an ordinary PFS because a lot of companies, they'll do their vendor testing in the FEED stage and FEED costs more money, and that's how you get projects that go over budget, what they anticipated because they don't do that vendor testing. So we did that vendor testing in line. And I can say like the flow sheet is not going to change now. We know what it's going to be. So we can close the book on Chapter 1 and Chapter 2 is all about horizontal wells. I think we're going to be able to reduce them. We'll be able to optimize them and it's the commercial agreements for the offtake. So that's where we're going. I think one of the biggest learning lessons, too, has been materials of construction do matter, especially when you are dealing in an aesthetic environment. We've -- one other change to the flow sheet we made was we actually neutralized the stream once we get out of the wellfield, like before we actually -- first step, acid concentration needs to be fully neutralized and that actually has helped us with materials and construction and one of the reasons we've been able to toggle down the CapEx.

Great. I want to talk about permitting real quick because I know with the existing permits you already have in place, they are up to 160,000 short tons of boric acid production. So it looks very well positioned regulatory-wise. But curious if you could share with the folks in the room, what are the remaining permitting regulatory milestones between now and that commercial production? What's still to come?

Sure. So we had initial capital numbers in February. And when we got the capital, one of the -- we were able to isolate that there was about $40 million to $45 million of CapEx attributable to sodium and calcium removal. So the calcium is what drives gypsum and the sodium all that salt, right? Gosh, sodium maybe $20 a ton, gypsum, USGS basically from a mined FOB basis, USGS publishes prices. It's about $36 a ton. They are not value-added byproducts. We did incorporate calcium chloride into that design. That is a little bit more of a value-added product. We'll produce now up to 57,000 tons of liquid solution or I'll say we have optionality issue. So you can toggle kind of between the two. But one of the ways we cut CapEx was we incorporated some additional ponds into the design, about 34 acres. Now what needs to be kind of noted is that, well, we have about 8 or 9 acres that a ponds that sit on our site today. We're going to close them down because actually the plant is going to be built where those ponds sit. We'll need a WDR, which is a waste discharge permit for those ponds. Now it's a really unique situation because that's happening on the back end of the plant. So they're on ponds. They are water, calcium, sodium predominantly. There's other companies out there that have ponds that are a bit contentious. They have arsenic. This is not what it is. This was just purely a value engineering. And listen, the trade-off was good. The ponds are about $5 million. So we saved about $40 million in CapEx by incorporating this, and we're one of the few geological areas where us in Atacama Desert where, listen, let mother nature do the heavy lifting and evaporate any of the excess water to create the finished product. What's coming out of those ponds is actually a saleable product.

Yes, I want to talk about generally the boron market for a second because obviously, looking at your sensitivity analysis, boric acid is the key value driver, it's the star of the show. And you mentioned earlier, you think that market is going to grow. Tell me more. What do you think is going to drive that demand outlook for boron?

Yes. Great question. And I use the analogy, diversification. So if you look at the boron market, it goes into over 300 applications. So as we did the market study, glass is growing kind of in line with ordinary inflation. Some of the glass applications a little bit more, but let's assume that's about 1/3 of the market, and that's the 3% to 3.5%. Non-glass, which is fertilizer, ceramics, construction materials, flame retardants growing about 4.5%. But the big driver of how then you get up there is specialty boards. Carbides, north of 5%. Permanent magnets, which requires the ferroboron and EVs, those CAGRs are closer to mid-teens. And so -- and you can kind of break out glass, non-glass specialties into kind of 1/3, 1/3, 1/3. And so when you take -- when you have 3.5%, 4.5% and kind of on average for all specialties, it's about 8%, but with ferroboron, which is a decent chunk and in size, off of magnets growing at 15%, 16%, you kind of wrap your head around how this market is going to grow at 5.5% is that when you look at what boron does for each of those different applications, well, you can't make glass without sand or silica and boron. It is a micronutrient and so that gets put into blends. Insulation, boron is the main ingredient that gives insulation its fire efficacy. On the permanent magnets, yes, like -- and I use the analogy mining.com did a great article on this is that rare earth, no doubt start a show. They won the Oscar. Tom Hanks and Forest Gump, that's it. But the borates like you can't make that magnet and that magnet is not what it is without boron. And so we get the Oscar for best supporting actor. And so the point being is that there's value in use and there's very little substitutability, which is why -- which is really kind of speaks the criticality of what boron provides.

Great. No, I appreciate that. And one thing, just zooming out, I'd love beyond the boron market opportunity. You could just give folks in the room, there's prospective and existing investors, a couple of reasons why to invest in 5E specifically compared, let's say, to other critical minerals companies.

Sure. So I think it's a world-class resource that we've mined and we've been processing for 18 months. We can achieve commercial production, and we do expect to achieve commercial production at scale. On a DCF basis in just Phase 1, and we all know the stock market is forward-looking, it's a $700 million NPV. If you just take basic math and divide the 20 million shares outstanding, that's a $30 share price. Now obviously, there's discount rates and we derisk this over time. But I do think -- where we are today, it doesn't justify valuation. And the third being we have a strong management team and a highly engaged Board. We have the know-how. We've been doing it for the 18 months. And if you look at the Board, you can follow the flow sheet on the mining side, you have Bryn who knows solution mining inside and out on that flow sheet, that mining feeds a chemical plant where Graham lends his expertise. You need funds to do that. That's where Barry comes in. And then ultimately, we need cheap agency debt, which is where Curt comes in on the policy side.

Yes, cool. I have one question. So with the technical report complete, you're moving towards a definitive feasibility, FEED engineering. What should investors who are new to the story, have been around a long time, what should they expect to come next? What are the next milestones over the next 1.5 years?

Yes. So we talked a little bit about the 18 super sacks that will -- that's here -- that's going to come. We've had really good conversations with EXIM. Josh and I both spoke with the EXIM team last Friday. So EXIM has what's called an engineering multiplier program where they can loan for FEED engineering. So if you look at the funds we need, about $8.5 million of like -- 40% of our cash flow requirements is actually for FEED engineering. And we can get a loan for that. And it can be -- listen, it's -- we have no debt today. We've cleaned up the balance sheet, all common stock. And at some point in time, we are going to add debt through project finance. But EXIM has an engineering multiplier program that's really good, cheap paper, i.e., 5- to 7-year term, treasury rates plus 100 bps, and it can be refied into a broader project finance facility. So it's truly nondilutive. And you can be paying that down along with project finance when you're cash flowing. And there's line of sight on that. So that's -- I have -- I got the application Friday. I know EXIM is like jam-packed because the Uncle Sam's fiscal year ends September 30, so they're mandated they got to get a bunch of loans done before then. But I believe we got to get the application in now. It will be senior secured like -- and we have the collateral. We have 400 acres of real property with billions of dollars of boron in the ground. So there's a -- it will be a collateral package, but it's great, low cost, cheap capital today. So we're going to apply for that. Like market will love us getting a smaller loan. And there's a 2-part benefit of that because, one, listen, you have multiple different debt packages that you can get. You have commercial banks, they tend to be a little bit more expensive, but they can move a little bit faster. You have private capital that tends to be most expensive but can move fast. And then in turn, you have agency debt, which tends to -- ends up being a little bit slower, but it's the lowest form of capital to get. And this is a great way to immediately get this application in, start off to take like a bite off of your liquidity that you need. And it gets their diligence team looking at the project and comfortable with us and demonstrating, "Hey, like we have a really good bottoms-up budget on what the FEED costs will be, what the actual -- all the additional testing that needs to be done, like we now -- so we now know how to make the product and what's our crystallization strategy. Now we got to go out for bid for basic engineering processes. And we need to do two because, listen, that's our largest piece of kit. So you got to keep those crystallization vendors honest or otherwise, that's when costs go out. So we need to keep it competitive. And so yes, I think that will be a major catalyst. We're working on the offtake. And listen, we've -- man, we made a really solid pitch to Dep Secretary of Interior on why boron has its place on the critical minerals list. We -- that list is coming out this fall. I do not know if we're on the initial list, but I do believe that I know the path we must take through the public comment process, which will be backed up with customer letters validating why they're concerned and USGS cannot ignore the industrial base. And when the customers are saying like we're concerned about boron. Boron, I think, can get flagged [indiscernible] this go around. And I think if you look at that and that happens, there's like 1 or 2 ways to get exposure to boron in the stock market. We are the only pure play, and that would be very good for -- and that opens up additional cheaper agency options. And listen, not going to rest until we get it on the list, but that's the plan, and we have made and we will continue to make the pitch.

Great. I got one last question on kind of the future before I'll jump to the questions that are in chat and one that came in over e-mail. I know given this project alone can generate -- will generate substantial cash flows. How are you thinking about capital allocation once you're operational at commercial production? Is that returning cash to shareholders, funding expansion phases? You're looking for new projects? What's up next?

It'd be expansion or that we go derivatives. Listen, we're a young company, and we probably not dividends out of the gate because we want to take that capital, reinvest it back into the business to -- and the market needs to tell us that that's what we need to do, supply and demand. When I say market, it's not stock market, it's supply and demand market, saying there's a need. But there's -- I mean we see it on the boron side is there's a ton of opportunity in those derivatives. We'll have the upstream feedstock, and we can really have a competitive advantage going downstream and building out a derivative pipeline. I think that would be my -- that's my expectation.

Great. I appreciate that. One question that came in over e-mail. It's a quick one. Are you still planning to extract lithium?

So it's interesting. So we're blessed that we're dealing in aqueous chemistries. So everything is in solution, and we are pipes and valves at every junction in the plant. We've -- and what's interesting is actually initial ICP analysis shows an uptick in lithium in the -- with the horizontal wells, which makes sense because a lot of the -- you're coming to a much larger contact of mineralization. And we're closer to 65 PPMs in solution. Now like this is not a -- there's a decent-sized lithium resource there. But on a tonnage perspective, we had like 130,000 tons of boric acid to [ think ] through the logistics and about 57,000 liquid tons of calcium chloride and 130,000 tons of gypsum. Those serious tonnages out of the gate. On the lithium side, it's a much smaller piece. So the benefit is that, that can play catch-up at some point in time, and it could be a bolt-on process along the way, and it's there. There's no question, lithium is in the solution. And so we -- and that as well as some of the metals. Today, the assumption is that we're paying the metals to be removed. There's catalyst business that need magnesium, aluminum and iron in hydroxide form that would probably just at least not -- they would come pick it up for free. It would not be a cost, and that's included in. And it adds about 0.2% or 0.3% to IRR. But yes, like we will bolt-on process and the priority was focusing on the big things out of the gate. That's included in the base economics. We didn't take credit for anything else. So there is no lithium byproduct credit today in this PFS nor is there anything on the metals, but that's all would be additional accretive aspects to the economics.

Great. A couple of questions from the chat that I'll run through. Just a couple of quick ones. [ Cess Egan ] asks, can you explain what COGEN process you're planning on using?

So we would the Mojave -- Kinder Morgan's Mojave Natural Gas Pipeline is right along Interstate 40, and it's 2 miles from site. So we would tie in with a metering station right off of the main trunk. That is actually in our record of decision. So the -- it's permitted today. The 2 miles of pipeline to the facility is there. And so we would use the gas to ultimately run a turbine and to generate electricity and then also for the boiling of the water. So we got three budgetary bids as part of our process. One was like way too big and -- because that was their lowest size. And then we had two other really good competitive bids from actually Tier 1 OEMs that made sense. One is actually manufactured here in San Diego, which is the one we went with. So that's an option. The other option is we're commissioning a method of service study, which is with SoCal Edison. That will take a little bit of time to work through, but there's a trade-off, and we have a megawatt of shore power today.

Great. [ Penner ] from the chat just wants a reminder of the cap structure of 5E?

So today, it's -- so all clean common stock, I often get asked, well, is there warrants. And so there is $20 million worth of warrants struck at USD 3.55 per share. So you have about 5.6 million shares and warrants at $3.55. Those warrants are set to -- they were 1-year warrants. I think February, they expire, so maybe another 6 or 7 months. And then there's another set of warrants up at $18 a share. Everything else is ultimately the management incentive plan, which basically myself and the team, options were restuck at the conversion price where lenders converted to equity, which is $6.74 a share. They're both very sophisticated investors. And basically, all parties are now aligned. And listen, I think we're all motivated. Listen, we're all here. We like the upside, but we also want to -- we want to see this project built.

Sure. And last question I'll throw to you just to close off today is [ Heiko from HCW. ] It says, obviously, shares are doing quite well over the last few days. I wants to know what have you been saying to investors who have asked if you feel like the PFS came in better than expected?

Yes. It's interesting. I think Friday, it was -- share price was decent. And then it's these technical reports, it's 120 pages. It takes some time to digest. I think the release was well received. But I think over the weekend, people had a chance to digest it, talk to a handful of people. And I think one person said like they were concerned after the PEA. There was -- and what this has demonstrated is we've tackled this on the cost side. Listen, these are mass and energy balance and CapEx numbers that Fluor is signing off on. It's the Greenville, South Carolina corporate headquarters group that's behind this. And it's very real. And I think the reserve kind of speaks to it, 40-year mine life. It's a multigenerational resource and it's 41% of reserves. So of the resource is converted into reserves. That can go up because SEC only lets you incorporate into your reserves on what's in your mine plan and our mine plan is a little different than open pit and that were wells. So if we incorporate additional wells, we can convert more resource to reserve. But yes, I think, it's -- people have been pleased. It is a very good technical report. And I don't know if you were able to kind of dial in, in the early part, but Table 18.2 in the technical report really speaks to Fluor's work product, and they specifically cited typical Class 4 estimate has this level of -- it's a factored estimate for these things and -- or this and that. And then for what we've done, like 60% of it might have been material takeoffs on actual measurements of piping. So we're able to drill down and get that more of a quality estimate. I also think that -- listen, it's another look on the market. And I think on the back of what you see occurring in D.C. and very much shoring up supply chains, people are like, "Oh, what's this unforgotten element boron." Say what? And there's been a lot of good media that has picked this up. And we were also prepared. We've had a lot of time to think about this. And we wanted to really get the story out because I spend a lot of my day educating. And the more I can use a catalyst like this release to kind of give us tailwinds, it makes my job a little bit easier.

Okay, makes sense. One last question from the chat, and then we'll jump today. Newberry Springs asks, what's the expected water draw for the project?

I'd have to like really get into Fluor's basis on that, but we have -- so what's really interesting is that when you look -- the deposit is bound by [ faults. ] So the resource sits in between 2 [ faults ] where there's like no water, and it's really ideal for solution mining. And then outside of those 2 [ faults, ] there's water wells on each side. Now what's interesting is people -- and I've had people ask about like what about like drinking water and it's California and it's a desert. Newberry Springs is a town of 40 people. Also, there's -- the water we have is nonpotable and it's not a drinking water. And so it's actually a closed basin. So it's kind of the groundwater flows to collect. It doesn't go anywhere. So it is ideal. There is about -- we have one of the wells is 650 gallons a minute. And then the other one -- the well that's in the plan of operation is 150,000 gallons a day. And so we have not seen subsidence or anything of that nature. And I think that's a question we often get, and it's clearly addressed in the technical report because we actually give some real good data on that.

Awesome. Well, Paul, we're close the end of the hour. Thanks so much for getting into the nitty-gritty with me and looking towards the future of 5E. Everybody joined, thanks so much for joining us. I know it's early in the morning for some of you and in the evening for the rest of you, as I do appreciate you joining us. The replay will be available probably tomorrow morning, and I'll pass along any additional questions through to Paul and the team at 5E. Paul, thank you so much. Hope you have a great -- good Tuesday afternoon.

Have a great day. See you.

Cheers.