Hello, and welcome, everyone, to Water Tower Research Fireside Chat. I'm your host, Dmitry Silversteyn, Managing Director of Chemicals and Materials Technology at Water Tower Research. Today, I'm being joined by Paul Weibel, Chief Executive Officer of 5E Advanced Materials, which is developing the Fort Cady Project in California into a vertically integrated producer of boric acid and advanced boron materials for industrial energy, defense, and advanced manufacturing markets. Over the past few months, the company has announced multiple customer agreements, advanced its commercialization strategy, and demonstrated additional upside through lithium carbonate byproduct opportunity, positioning Fort Cady as potentially the cornerstone of a U.S. critical minerals and metals supply chain. Welcome, Paul, and thank you for joining us today. Good morning. Great to be here today. How are you? Great, thank you. Before we begin, I want to remind the audience that 5E Advanced Materials' safe harbor statements are available and can be found on the company's website at www.5eadvancedmaterials.com. This Fireside Chat may not be reproduced or a written transcript distributed without the express written consent of Water Tower Research. With that out of the way, let's get going. Paul, the boron market has historically flown under the radar, if you will, for many investors, but that seems to be changing. What are the biggest changes taking place in the boron industry today, and why do you think boron is becoming an increasingly strategic material? Great question. I think it's flown under the radar because it's been this historic global oligopoly where 85% of global supply is dominated by two groups. One's a private, nationalized mining company out of Turkey. It's about 60%-65% of global supply. There are some financial statements out there, but they're in Turkish, so it's very hard to understand what their production capacity is. Two is Rio Tinto's U.S. Borax, which financials are disclosed, but they're really buried in Rio segment information. It's a relatively opaque market with very little reporting. As you look into that, I think the U.S. government got it right and in November flagged boron as a critical mineral. Rio has a depleting mine life. There was a reserve downgrade in 2018. The business is for sale right now. That has been publicly announced by Rio. I think the main driver of why it's becoming so important is supply and demand. Project Blue, which is a really great market research platform, they're formerly out of the Roskill Wood Mackenzie team. They have the boron market in a deficit today. When you look at what happens when a commodity or chemical is in a deficit and there's excess demand over supply, ultimately that drives higher pricing. It's very similar to what we've seen in the lithium market or the tungsten market or as supply gets short and utilization is overused, in turn, prices drive higher. Why it's becoming so important on a go-forward basis is that one, what China is to rare earths, Turkey is to boron. You have different tariff regimes, but ultimately you have the specialty applications where the neodymium permanent magnets, ferroboron comes predominantly from China. Boron carbide production, again, China. You have a depleting asset in the U.S. that while we've had reliable long-term supply, for the long term, that position isn't as secure as I think everyone has previously assumed. The punchline being, we're in a deficit, and two, this market's growing, and it goes into so many different applications, of which many are critical to make life as we know it exist today. Thank you, Paul. That does provide a good overview of why boron is becoming strategically important. Let's bring the discussion back to 5E specifically. There are very few advanced boron development projects, you mentioned, whether it's in North America or globally. What differentiates Fort Cady from other boron assets around the world that may be in the development stage, and where do you believe it fits within the global competitive landscape? You can count the prospective sizable economic boron deposits that aren't in production today on one hand. There's about four of them globally. There's high barriers to entry in the boron market, specifically tied to geology. While boron is a common trace mineral, in large economic quantities, incredibly rare. This is why you see deposits dominated in Turkey, California, Nevada, as well as Serbia. Right. That's where you find the deposits. There's a couple smaller South American producers as well, but you predominantly need faults in geology. Large economic deposits, they're just inherently rare. Fort Cady, we have a large colemanite deposit. The benefit of colemanite, it's a calcium-based boron mineral. It's very easy to leach. There are four types of minerals where boron is commonly found. That is the colemanite, it is tincal, kernite, which coincidentally, Rio is located in Kern County, California, so that's where the kernite comes from, and ulexite. If you have mineralization of those four, you can extract the borates relatively easy. I think we have a colemanite deposit. Our method of mining is in-situ leaching. We have all of our major permits. We'll inject a very dilute hydrochloric acid underground that leaches out the minerals. We'll pull that to surface. Listen, I think the benefit is we're dealing with aqueous chemistry. As you think about processing, it's not like we have to move dirt and then crush and float and ultimately refine that. When we pull up to surface and we process that, we have an aqueous solution that's easy to crystallize and remove out the borates. Additionally, with our process, we can now produce different levels of borate grades. We have our metaboric acid, which is an 80% B2O3, as well as our traditional boric acid. I think from there then, that's our base business. We'll also have value-added byproducts such as the gypsum, the calcium sulfate, as well as the lithium carbonate. I think from a differentiating perspective, we have this portfolio of critical minerals, and then you have the ability to further refine and go into some of those specialties. The metaboric acid is definitely a specialty. Additionally, we're almost on our first round of bench testing for ferroboron. That's an iron oxide, reduced in a furnace with high B2O3 products. I think you have the ability to vertically integrate and then solve some of those downstream derivatives which the Chinese dominate today. Thank you. That certainly helps put Fort Cady's competitive positioning into perspective. Of course, a great asset can only create value if customers want the product. You've made some meaningful progress on that front over the past few months. One of the more noticeable developments this year has been the series of customer agreements that you have announced. How do these agreements validate the project, and what should investors understand about the commercialization strategy behind them? Sure. I think we've really focused probably since March. We've been talking to various customers for the better part of one and a half to two years. I think we've qualified, we've demonstrated that the product we can produce out of our deposit through our small-scale facility meets customer specifications across almost every industry. We're at a point in the business where to move this forward, you need heads of agreements that form the basis for those binding offtake agreements. In March, we did a customer roadshow. We visited probably nine or 10 various customers of different shapes and sizes, all domestic predominantly. That was intentional because there was a much smaller producer that had exited the boric acid market. Customer concerns were elevated. Listen, we're a two and a half, three years out. We're going to go to FEED engineering. Ultimately, you want to build this project, and you got to commission. Ultimately, if you're going to go into FEED engineering, which is an eight-month process and is about $8 million, you need to know that on the other side of that, you can achieve FID. What you need is poolside demand and customers saying, "If you build this project, there's going to be buyers that are going to buy your product." Very rational, keep it simple. We proposed different structures, and I was on a previous webinar earlier in the year, and I said, "Listen, we're going to have a diversified basket of customers across multiple industries with various contract structures, of which they all need to be bankable." Obviously, you can get debt lending on those contracts. Today we have five initial HOA contracts. One's a letter of intent. Basically, the important part is that the commercial terms are fleshed out, right? That is something we can look to take to lenders and say, "Hey, I have a revenue lead sheet in our financial model that ultimately underpins the bankability of this project." Our contracts today, a handful of them are fixed pricing with annual escalation. The most recent two we put in place are indexed to Fastmarkets, boric acid FOB price on the West Coast, and they're collared. There's a floor and there's a ceiling. The floor and that ceiling, they ultimately escalate over the life of the contract. That's something where a lender can come in, they can look at our contracts, they can then say, "Okay, I can model in a worst case, a mid case, and a best case scenario." Listen, they're not going to lend on the worst case. They're not going to lend on the best case. They're going to find a midpoint. I think that's what we're doing. I think there's probably one more domestic U.S. customer we're looking to close out here. Our team was over in Asia maybe two months ago, six to eight weeks. We're looking on doing this next round of contracting and HOAs with the Asian customers to get our export nexus here, and that takes us to a point where we can ultimately have a nice portfolio, probably as we think about any loan, 10 to 12 customers, which I think when we're at full-scale production, we'll have closer to 25. Understand. Okay. Those commercial milestones certainly suggest the market is responding to what you're building, given how quickly the agreements came together after your March trip or your marketing and commercial exercise. Beyond the core boric acid business, though, you've highlighted several additional opportunities that could enhance projects economics. You've outlined opportunities in lithium recovery, calcium chloride you mentioned, gypsum, and longer-term, getting into the specialty boron products. How important are these additional revenue streams to the long-term economics of Fort Cady? It's really important because I think it gives us the opportunity to sell at higher prices, which thus in turn make us that much more bankable. Obviously, in our pre-feasibility study, the lithium economics were not included. We've always had a lithium chloride stream. When you equate out what we've seen over millions of gallons injected in recovery at our demonstration plant, it's that we'll produce 500 tons a year of a lithium carbonate for about every 130,000 tons of boric acid. We were very intentional when we were going into FEED engineering that the lithium stream could be viewed as a bolt-on. It's relatively small in the grand scheme relative to the boric acid production as well as the gypsum. When we first got capital numbers from Fluor, there was a significant amount of CapEx tied to sodium removal. We'll also produce some salt as well. Salt maybe sells for $30 or $40 a ton. It's not a value-added by-product. There was the $45 million of CapEx. We just said, "We can't spend that much money on a product that we're not going to make that much money. Is there an alternative way to extract it?" You can. You can use good old-fashioned solar evaporation ponds to get the saltwater out of the back end of the process. We incorporated five ponds into design. They're all on our real property. We have 200+ acres on our land. San Bernardino County is really friendly, so easy to get them included. This winter, we kind of, is it winter in California? Not really, but in January, February, we said, "Okay, lithium prices seem to have found a floor here. They're on the upswing. Let's take a look at the lithium stream." It was really a sixth solar evap pond, very small for 500 tons, and it's the same technology package that ultimately they use up in the Atacama Desert every day. We're in the high desert of California, so it's very similar climate to northern Atacama, and it's a place where solar evap ponds work. That got included in the design. I think at 500 tons, anyone who's operating a salar or a lithium, it just takes time to let the sun do what the sun needs to do. You ultimately will be a very low-cost producer of lithium when you are using solar evap ponds. I think nominal cost to that and the CapEx is incredibly low. We did the trade-off. We looked at DLE and for 500 tons, it didn't make sense. That can be an additional $50 per ton credit to boric acid at $18 a kg lithium price. Very accretive and will help us be that much more bankable. On the metaboric acid, listen, there's stoichiometric value there. No question about it. We've tested that with various customers. Customer feedback is like, "Hey, if I used your metaboric acid in my textile fiberglass process, I can use less product of your 80% than the 56%." I'm happy to pay a higher price in turn for that. I've outlined how that pricing could work, and I think it gives us some boundaries to negotiate. We are working on some of those meta contracts today. I think that'll be included in the design as well. Obviously, colemanite being a calcium-based deposit, you have optionality where you could either produce a calcium sulfate, which is the gypsum or calcium chloride, which is ultimately another industrial mineral. The interesting thing is that we did this because it gives us optionality on our variable cost profile. Most recently, because of what's going on in Iran and the Strait of Hormuz, the sulfur market has gotten very expensive. Is that specifically tied to Iran? Kind of. China exports a lot of sulfuric acid, and because of the strait, any of their production they've decided not to export, and that has made the sulfuric acid very expensive. Sulfuric acid and hydrochloric acid, which are two reagents, we mine with HCl, but we can take sulfuric acid, which has been historically the cheaper of the two reagents, and through aqueous chemistries actually precipitate gypsum and regenerate hydrochloric acid, which becomes our feedstock to mine. We don't have to buy sulfuric acid. We could just buy hydrochloric acid. Over the last couple of months, sulfuric acid has gotten more expensive than hydrochloric acid. If you wanted to just use hydrochloric acid, you could, and as a result, the byproduct you would produce in that situation is calcium chloride. You would actually be relatively mitigated to some of these crazy up prices we've seen in sulfuric. Yes, you're going to pay more for your reagents, but because you have optionality, you could procure the lesser of the two expensive reagents given what we're seeing on the geopolitical front. There's ample demand for both of these in Southern California. The majority of calcium chloride production in the U.S. does come out of Michigan. It's an accidental asset. There is some production in the Southwest, but there's demand. On the gypsum side, you do have two very large cement manufacturing companies that have qualified our product as well that are very local to 5E. I think having those two byproducts in our design, one, it actually ends up being a risk mitigation from a variable cost perspective. Two, it gives us optionality to play one off of the other and get the highest net back at commercial production. Understood. It sounds like those additional revenue opportunities illustrate how integrated the project could ultimately become and the flexibility that this gives you in terms of purchasing of materials as well as the markets that you're going to target with your byproducts. Sticking with commercial theme for a second, let's talk a little bit about the end markets that have been driving demand. You referenced the fact that demand for boric acid seems to be picking up and for borates in general. The industry forecast suggests that the boric acid demand could outpace supply or is already outpacing the supply and could certainly grow significantly over the balance of the decade. Where are you seeing the strongest sources of demand growth, and how do you expect those trends to influence Fort Cady's development? What we've seen, obviously, the most recent customer agreements have been domestic users. You had a small domestic producer exit the boric acid market, circa 50,000 tons. That immediately has pushed it into a deficit. If you look at those customers who were contracted with that group, they were left scrambling. If you look at the five off take agreements, it's about 18,000 tons firm up to about 30,000 tons on max volume. I think that was front and center. There was a need on the domestic side. We continue to work on LCD and textile fiberglass out of Asia to round out the remaining balance. I think, listen, we've known that right now everyone's contracting for their 2027 contracts. As Rio Tinto has done a great job pushing up price, the revenue metrics validate that while their production is flat. What we're seeing and what we're hearing is Turkey's following. In a natural oligopoly, Rio has broken out of this prisoner's dilemma, and there was always a question of, "Oh, what's Turkey going to do?" They're going to follow the price. That's the only rational thing to do. My understanding is this is coming from Mark and various customers we're talking to. A lot of end users are in a dog fight in their contract negotiation right now, because the prices just aren't going to be what they previously have been in the past, and that's a function of this market's growing and supply is short. Listen, until 5E comes online, that's not going to change. I think we're in this first inning of the boron market becoming what rare earths have been, and I don't see that changing at all. It's not going to change until the medium to long term. Understood. It certainly sounds like the demand backdrop is becoming increasingly favorable, especially with the supply being reduced a little bit by the exit of the small player. With that, investors will naturally be asking what comes next for 5E. Let's talk about that. As the project moves closer to commercialization, you talked about maybe two and a half, three years out or so. What are the key milestones investors should watch for over the next, let's say, 12-24 months? Sure. I think at some point we will move into FEED, no question about that. That's a function of our customer pool, which is increasing. I think there's the advanced materials, there's additional work streams we've been working on. I think we've done a handful of tests with ferroboron. It's very close. We feel very good about that, and I think on that side, that's something that. Listen, I think from a government funding aspect, my view is we want to take this to Department of War. Obviously, there's criticality from a China perspective in that the ferroboron is predominantly captive to China, and there's been no U.S. domestic solution for ferroboron at all. We will provide that solution, very confident in that. I think the only thing holding me back from taking that to informing the government of what we've done is I want the finalized sample that meets magnet specifications, and we're close. I think once you've demonstrated you know how to produce, you've dialed in all your temperature parameters as well as your specific chemistries on your utilizations. That can run on itself. You would obviously look to do some larger samples, and this is all done in lab and it's very inexpensive. The question is like, okay, how can you be a reliable producer of FeB in the long term? I think in the next 12-24 months, there's a ton of optionality there. We got to get that out there, inform the U.S. government. There's end users that have reached out to us as well, and it's what kind of potential partnerships or offtake constructs can you think about bolting on with the FeB? I think there's that there'll be more commercial progress. We're kind of 18,000-19,000 firm tons in and 29,000 tons max. My sort of near-term target here is 50. I think we're well on our way. I really only started focusing on this four months ago. I think there's diligent execution behind we're going to do what we say we're going to do, and I think I'm quite pleased on the progress we've made on the commercial front. Excellent. Sounds like achieving these milestones is doable. Of course, they'll require capital as well as execution. Let's spend a few minutes discussing how you're thinking about financing the next phase of Fort Cady's development. Large critical mineral projects require significant capital, as we all know. How are you approaching the financing strategy for Fort Cady, and what advantages do you believe the project has as you engage potential financial partners? Sure. For FEED engineering, what we have in mind is the EXIM EMP loan. We've been back and forth. We applied, we've been back and forth with EXIM on that. There's a biweekly touch point on that application, and we feel good about where we're at. Listen, the business has evolved. When we first applied for that smaller loan that can cover the cost of FEED, we were raising money every four to five, six months, and that's not the case right now. We had $25 million in the bank as of March, and we've successfully raised capital that we don't need to come back to the market today. For the FEED portion of this, that would be the EXIM EMP loan. The benefit of that is we have a larger LOI with EXIM. EXIM can loan up to 80% project finance. You're going to have to make sense with the commercials and you're going to have to maintain a 1.2 coverage ratio in your financial model. What we're doing is very intentional. The metaboric acid can contract at higher prices. The floors and the collars, they give us downside protection. Fixed pricing is very straightforward to model. While the LOI we have with EXIM is $285, we can clear underwriting at more, we will. It's going to come down to what is the offtakes ultimately bode for that underwriting process. We do have multiple grant applications out there. We have a DOE grant as part of their Mines of the Future. Again, I can't undersell how competitive that will be. We applied in January. We should hear sometime soon. That was a $31 million grant. A decent amount of that goes to the commercial well field at scale. Between some of the, whether it's the longer term debt, the EXIM debt for FEED that can be refied into a larger debt facility, and obviously potential prepayments, we are unencumbered by any royalties. The lithium stream's a really interesting optionality on that. The goal is to not have to come back to the market anytime in the near term. We don't need to. We had $25 million in cash as of March 31st, and we're in a decent spot, and the focus is executing on the business plan that we've laid out in that February raise. Understood. Get the plan going and then let the financing follow. That makes sense. Before we wrap up, I'd like to take a step back and look at the bigger picture. When you think about where the company's headed over the next couple of years, in other words, if we were having this conversation, let's say, two years from now, what would you like Fort Cady to have accomplished over that timeframe? What would success look like for the company if we were having this conversation in 2028? I think we're thinking about commissioning a large-scale boron facility. That would be success. I also think there's optionality, too, in the near term with some of these meta products, or I think it starts with we're in the more infancy stages of ferroboron. Do you have tolling operations in place that are potentially on the meta product, we can produce boric acid, but there's the ability to take someone else's boric acid and potentially refine that to a higher B2O3 product. We're waiting on some of the customer poolside demand, and that's something we could look at it as well. We have a team. They're capable. We've done this. In the interim, do we actually focus on? As we think about going through that loan process and the FEED, our operating team will have bandwidth. Could we work on some kind of internal tolling mechanism or internal further processing of midstream B2O3 products where we're actually getting customers what they want sooner than later, and actually making some money or some revenue? I think that's something we look at and we examine, and I think in two years from now, if you're doing that reduces equity dilution potentially, and then it also gives us. We're looking at a large-scale commercial production. Understood. To paraphrase Tom Petty, the future looks wide open. It is. Thank you for that, Paul, and thank you for joining us today. Paul Weibel, CEO of 5E Advanced Materials. To learn more about the company, please visit their website at 5eadvancedmaterials.com. Please note that the views expressed on this Fireside chat are not necessarily reflective of the views of Water Tower Research, LLC, and are provided for informational purposes only. This Fireside chat may not be distributed or reproduced without written consent of Water Tower Research and should not be considered research or recommendation. WTR is an investor engagement firm, not a licensed broker-dealer, market maker, investment banker, underwriter, or investment advisor. Additional disclaimers can be found at www.watertowerresearch.com. Thank you everyone for joining us today.