5E Advanced Materials Corporate Update

0:07 Good morning, good afternoon, or good evening, depending on where in the world you're signing in from. It's a very international audience today, so I appreciate everybody spending time with us. I'm joined today by 5E Advanced Materials CEO, Paul Weibel, and Chairman Graham Van Hoff. Gentlemen, thanks for joining me today. Thanks, Rubio. Yeah, no problem. So here's how today's going to work. I'm first going to throw out to Paul and Graham, beginning with Graham, for just an overview on recent news for the company. Then I'll have some questions to go through, including those submitted in advance via email, which I appreciate you guys sending those through. And finally, we're going to take a couple of questions from today's live audience. Now, if for whatever reason we don't get to your question today in the chat in the bottom right hand of your screen, whether that's because you ran out of time or it had already been covered, et cetera, don't worry. We're still going to make sure that the 5E team gets them so that they can get back to you as soon as possible. I'll say that today's event is being recorded and will be available for replay probably tomorrow morning around afternoon time. I'm going to really quickly go through some legal text. So give me 1 second.

1:02 I'll say before we begin, please note that certain information presented on this webinar will constitute forward-looking statements than the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve many risks and uncertainties that could cause actual results to materially differ from 5E's current expectations. Further information on these risks and uncertainties is contained in 5e's filings with the SEC and the risk factors of such filings in the forward looking statement portions of the press release 5e issued earlier on the morning of January 14 2025. Copies are available from the SEC on the 5e website at www.5eadvancematerials.com. The forward looking statements made during today's call are based on 5e's current expectations, forecasts and beliefs, and 5e does not intend or does take any obligation to update any forward looking statements, whether it's short term information, future events or otherwise. With that out of the way, and my housekeeping generally, I'll pass it to Graham to start us off today. Well done, Romeo, for getting through that quickly.

1:51 So welcome, everyone, and thanks for joining us. As incoming chairman, I want to make a few remarks before Paul will then go into the details of where we are. I'm sure a majority of you on this call share the vision of us bringing on a new world source of boron as boric acid but also other boron derivatives and that is the promise of what 5e advanced materials is all about. The same time I'm sure all of you are bitterly disappointed with our share price performance. And I can say that I am and everybody else on the team is also.

2:42 The reality is that it stemmed from a number of big mistakes that were made in the period around 2021 and 2022. They stem from over-optimism, over-promise, and a lack of attention to details. The consequences of that was that the small scale facility that we brought on stream took too long for us to build. It was too expensive. It had design flaws. It had procurement flaws. And that led to quality flaws, both in construction and in operations. And the consequence of that is costs and delays. And of course, with costs and delays, that then created a liquidity drain, which is what we've been struggling with for the last 18 months.

3:35 The same time, if you go back to like middle of 2022, if you looked at the size of the management team, it was the kind of management team that you would have expected from a midsize revenue generating company, not a pre-revenue startup. And so that meant we had 2 high G&A levels, which also was a drain on the liquidity. We still have some issues with the SSF, but the team has done an unbelievable job managing through those, and I am completely confident we'll continue to do so. I think the team that we now have in place is a great team. It is small, it is highly motivated and it is high-performing.

4:23 This is not the team that created the problems, this is the team that is fixing the problems. Similarly we've reduced the size of the board, so we've cut down on the G&A from the board, and what we have as a board is now highly focused and driven to achieve the very best that we possibly can.

4:46 I'm sure that many of you are disappointed with the share dilution involved with this deal. The reality is we needed money and that money was not forthcoming from other sources. The deal we now have is not perfect, but it does position us to have an ownership structure to attract new funds and to have committed backers into the future. We've made tremendous progress with our commercial plant design. It is really important to get this right for all the reasons that I've just spoken to that were negatively demonstrated with a small scale facility. And we are continuing to uncover opportunities for improvement.

5:35 The challenge is for us to get this finalized at a high quality as soon as we possibly can. And with that, we will enable a new technical report. We will enable the start of feed and with that the opportunity for new investment from third parties and from government. So that's the work of the next few months and the team is absolutely committed to doing that as well as we possibly can. I'd like to thank all of you for being on this journey with us. I know it's been disappointing and

6:18 you know I think we all feel it but you feel it a lot so but thank you for being on this journey and staying on this journey with us. And with that, I'd like to hand it over to Paul and Paul's gonna go into a lot more detail. So over to you, Paul. Thanks, Graham. First here, I want to thank all in attendance for today's call. And I also want to thank and acknowledge 5E's team for their continued dedication and hard work, and really determination as we continue to execute on the business plan.

6:51 Following up on Graham's remarks, before I want to summarize the transaction, I want to emphasize that my expectation here for 2025 is that we continue to build upon our operational success that we achieved in 2024. We started authorization and mining activities, and then that segued to first product, samples going out, and in really steady state, and ultimately culminated at the end of the year where we sold 22 Super Sacs and feedback on that has actually been really really good as that product went directly into blow-in insulation in the US market. But with that, yesterday we did announce our restructuring support agreement, and that includes the following highlights.

7:39 The company issued $5 million of convertible notes that had a conversion price of approximately 29 cents. And then that outlines a path here where we will call a special meeting of shareholders. And upon a favorable, a successful vote, that RSA achieves the following. It'll be a full equitization of all convertible notes, where the company's going to issue approximately 312 million shares

8:09 of common stock. Lenders who will then at that point in time be shareholders will subscribe to 5 million of the company's equity, that equity price will be struck at the conversion price or approximately 29 cents or the lower of 5 day VWAP or volume weighted average price post-equitization.

8:30 Lenders will receive 1 year warrants to purchase a number of shares of common stock with a value equal to an aggregate of $20 million. And then Ascend and Bluescape will each have a right to nominate 2 directors to the company's board, which will be trimmed down to 4 on a go forward basis. So with that, that kind of summarizes the high level terms of the transaction, and I'll kind of pass it back off to Romeo here to kind of run through some Q&A. Appreciate that very much, Paul. So I'm gonna go through some questions as a reminder, especially the folks who joined a bit late, that you can enter questions in the chat box at the bottom right of your screen at any point during today's presentation.

9:16 So I'll start first off and look, this was reflected in a few of the questions that were submitted via email. How did you arrive at 80% Paul?

9:23 Yeah. And I think it's give or take dependent on time and conversion. I think before it was approximately 79 and change. And then with the equity, it kind of ticks up to 81%. It depends if you're looking at it on a fully dilutive or non-dilutive basis. But what I think needs to be noted, and Graham spoke to some of this, is that we did test the equity markets on 3 different occasions in 2024. And if you look back and what was the result of that, we brought in $4 million of equity. And at each time we had to go back to the note holders and we raised them $17 million in convertible debt. And each time we went to the market, the feedback was adamantly consistent And yes, you're operationally excelling and you're progressing the business forward, but those notes, they're a problem and they're an overhang.

10:16 And so given that structure and the feedback we received on 3 different occasions, lenders were essentially becoming the majority of the financial support and that needed to change. And so with an equitization, What that solves for is ultimately a healthy and investable capital structure where those 2 lenders are going to forego their priority on the cap structure, any rights under

10:42 the notes, but this is contingent upon a successful vote. And that's going to be required. And, you know, from approximately this 80% level, this was agreed based on a negotiation that really struck a balance between what are shareholders' interest, hey, we needed money now, and Capital would continue funding the business. And then it compensates the lenders with an ownership level that, they're comfortable to equitize and really give up that seniority in the capital structure.

11:13 Well, appreciate that. Another one that was written in, why weren't existing shareholders given the luck to participate at these levels? Yeah, I think this dovetails on the back of the last question, which is like 1 leads to another, but we did test the markets on 3 different occasions and we had spoken with various groups of larger shareholders, and there was no term sheets submitted. I was in an Australian trip in July and kind of walking through where we are today, where we're going,

11:46 and someone told me, like, I ain't investing, I ain't buying the stock as long as the notes are there. And people were candid about the notes.

11:58 And they were a barrier for the, whether it's issuing capital or buying in the open market. And so as we, you know, kind of into December, we really needed to work through a structure to equitize the notes and secure immediate funding,

12:19 as essentially we had a cash covenant that had relief, but that was expiring December 31st. So we knew we needed to solve for that, and those were our 2 priority items. So having an on-leverage balance sheet that really is healthy, with no debt, really sets up the company for longer term success and positions the company to excel operationally. I'll say that the RSA docs do restrict our ability to offer securities during the pendency of this transaction without lenders' consent. But our board and our lenders understand that, listen, this is a $300 million project and there's going to be additional capital required. Appreciate that too. So one question, now that you're free from the restrictive debt levels, what are the anticipated use of funds in the near term?

13:10 Listen, I think

13:13 restructuring aside, like we're business as usual here and we're focused on delivering. Funds are going to go to continuing production of boric acid for customer qualification. We continue to really track well with floor and our pre-feed, and we've already kicked off our vendor testing program with specific OEMs.

13:33 Milestone-wise, we're really focused on getting enough tonnage here for specialty glass tank testing in the Asian markets, as well as the offtakes on boric acid and calcium chloride. Following a successful vote here for shareholders this quarter, we're going to be free from restrictions, covenants, once we can close this restructuring. And This comes with lenders giving a priority in the cap structure. No, it makes sense. After the restructuring, how much, if any, debt will still be remaining on the balance sheet? Always 3 small truckloads. So it goes from 0 to hero. Okay, I appreciate that.

14:18 Graham, I'm gonna get you in for the next one if you don't mind. Curious if management or the board are gonna get retainment bonuses or any other additional financial incentive as part of this transaction?

14:30 Yeah, so first of all, let me be clear that as part of the transaction there is no cash retention so that that is not in the transaction. I think the board and compensation committee will need to consider

14:45 what may be an appropriate incentives to retain our talent going forward. I would say you know as I look at it now I do not envisage that any form of retention is needed for board members. I think and I can say I've been contacted by more than 1 investor saying that you know I really hope that we're not going to lose some of our key management and I would say I share that sentiment and it is very important that we have enough incentive structure to make sure that that indeed is the case. So our key management and we're small lean and you know there's no real overlap of capabilities here. So we need to retain what we've got and we're happy with what we've got. And so I envisage we'll probably need to do something.

15:42 But we have not landed that at this point.

15:45 Appreciate that very much. Paul, what changes to the best your ability to answer what change to give your lenders the confidence to rotate their positions from creditors to equity investors? Listen, I think we've gotten to know the Bluescape team, we've gotten to know the Ascend team.

16:03 It's visits with both of them and getting management, getting to know our investors. And while I can't speak for the lenders, I believe it's the relationship we're building, they're our financial partner and our sponsors. And

16:19 it's continued execution, commercial progress on what Mark and Kenneth are doing. Listen, Ascend and Bluescape are both financial investors. They're going to listen to what the capital markets are telling us, what's the market saying. It was saying that the current corporate structure is a challenge.

16:48 That feedback with listening and knowing what the company has been doing and the progress we're making, while I can't speak for them, is why I believe they're going to equitize. And so, but we got to get a favorable shareholder vote. Their preference has really been, want to see share price go higher. There's value in convexity in the condo. And Their preference is to have other investors in the company. If the investment community and market are saying, and the feedback is that minimal capital is going to come into the company with the notes on the balance sheet, we needed to work a solution to remove the debt. And so that's where we are today. Raoul Pal, Ph.D. And maybe just to add, Paul, you know, the risk of slight duplication, but just an add, you know, I think that, you know, we all know that, you know, the discount that they're getting off the current share price is a frustration to or it would be a frustration to me sitting in an average investor's shoes, frankly.

18:12 So we understand that. At the same time, I'd say the what they are doing here is a huge positive, and that's for 2 reasons. And I think Paul's said them, but I'll re-say them, which is, first of all, I think both of them recognize that them staying as notes holders was fundamentally not going to unlock our ability to get new investment into the future and it was it was blocking it and as long as they sat there that was really not going to work And the second thing I think is, you know, by stepping now to becoming equity holders like everybody else, obviously now they're exposed. And I think the fact that they are exposed means that they also have to be fundamentally committed.

19:04 And I think that commitment is an excellent thing for us for the longer term. So I think we get into a fundamentally much better position. It does come with some level of pain right now, which we appreciate, but we think ultimately, it's the right thing going forward.

19:26 Thanks for that additional context. The next question is echoed by Adrian in the chat, which is how far do the funds from equitization and the additional equity purchases take you in terms of operations and advancing pre-feed engineering? So really with the new capital, how long of a timeline does this fund based on anticipated burn rate? Great. Thanks for the question. I appreciate the activity in the chat.

19:50 So the first part of the funding package will give us runway to complete for pre-feed engineering. There was a, you know, when we kind of announced that the byproducts going to be calcium chloride that did push out pre-feed a bit into a little bit later in the spring. So it gets us through that. We think that the move to calcium chloride, it's an industrial mineral. It's a better product to sell than gypsum. We've gotten that feedback already as we're talking to various groups.

20:20 So it gets us through pre-feed, PFS, all the vendor testing, you know, really getting that builds and kind of stage gates over into the Fell3. And the equitization also eliminates those cash covenants and kind of onerous rules that come with with the notes and it could keep us running till June. You know, and I think that kind of harmoniously aligns with, you know, what I expect will be at a point where we can stage gate to file 3, technical report will be in the market. And then obviously the warrants then provide an additional pathway to continue funding the business, then we believe, you know, the exercise of the warrants fully funds the company FID.

21:08 So I think this,

21:11 yes, there's optionality with the warrants, but it's a tool in the toolbox. And essentially with, you know, as BlueScape and Ascend are essentially financial partners. Thank you. Next question also reflected in the chat. This is given the current price level and the volume of new shares, will you have to do anything like a reverse split to cure issues with the NASDAQ?

21:33 And if so, what does that look like? Yeah. So, okay. And I've gotten

21:39 one-offs, whether just calls or emails on this for, and this ties directly to the NASDAQ deficiency. So there's 2 rules. 1, you need to maintain a dollar stock. There's kind of exemptions. You get 6 month periods to kind of work through that. 2 is that our book value of equity essentially is below $10 million. And that's an accounting mechanism, but NASDAQ requires it to be above $10 million. And there's kind of nuances of why we got there. Some of our crazy debt restructure, and we had a loss last year because of the restructure and while we're depreciating the small-scale facility kind of over a smaller period because what we plan on building a much larger commercial facility so all this kind of complicates into well you know you have a NASDAQ deficiency

22:35 kind of a couple storms colliding So we have a proxy statement that is scheduling our annual meeting on January 21st. On that proxy, there's a proposal for a reverse split to maintain NASDAQ compliance. It wasn't bearing on any unforeseen changes.

22:55 I anticipate that proposal will get passed, And then essentially the board can effectuate the reverse split in a few weeks. And I think the range is like 13 to 1, then maybe 25 to 1. Don't hold me to it, but there's a range. And that final ratio is to be determined. And then additionally, a successful, there'll be another vote and a special meeting that essentially has,

23:25 you know, if it's a favorable vote, you know, it's equitized. And right now you have, you know, a big liability that will go into equity and that satisfies the other NASDAQ deficiency and we would maintain the minimum book value deficiency. So there's solutions now proposed and at the table for what we hope will solve or we think will solve both deficiencies.

23:50 Okay. Post transaction, will 5e need any additional capital raises just to keep the company solvent? Listen, I think This transaction provides the means and mechanisms to get us FID. Yeah, there's going to be additional capital needed. I think I'm hopeful and I'm excited to really kick off the process here with XM for the debt facility. Additionally, talked to multiple private equity funds about the royalty. And I think that continues to be assessed. And so I think the, you know, that, those 2 mechanisms combined with the healthy capital structure,

24:42 I, and we're in a position to deliver. And I think the goal is to get to the debt piece And there's multiple things that kind of tie into that. Okay, well, can you talk a little bit about, because I see also in the chat about,

24:57 you know, what are the kind of requirements of ExSim and how you see that conversation, that process going? Yeah, yeah. So I think it's good. Great question. So next step with XM, I'll hop a fly in with Josh at the end of this month.

25:14 DC is changing right now. And we want the new administration to come in and so that's when we'll have our first kind of game planning meeting with the Exum team. Really that's going to be a kind of let's set expectations, give an update where the project's at, where we're tracking for our PFS and in completion of pre-feed engineering.

25:38 And then I think from a requirements perspective, listen we're going to need offtake agreements, they're going to need to come in place, we're going to need a, you know, technical wraps from our EPC firm, We're going to need a fixed price EPC contract.

25:56 And there's numerous steps along the way to get there. But I think what's at least been kind of outlined to me is that you, what we'll do is that after this meeting, we're going to be working towards what would be a term sheet. And my hope is that that kind of lands right around the pre-feed engineering time, because with the pre-feed engineering, we're going to have a plus or minus 25% capital estimate. And we have a higher degree of certainty on what the project's going to cost. And that can dovetail into the term sheet where we outline terms, run the paydowns in the financial model, and it then opens up 6 months of hard diligence while we're going through feed.

26:42 And that is where we need to paper up the off-takes. That is where we really need to be sharp on our logistics. You're going to have multiple project sponsors. Who are we going to be supplying natural gas from? Who are we going to be, which pipeline is it? Is it Kinder Morgan or is it SoCal Gas? And there's a lot of work that'll go into that, but that process drives to a conditional loan commitment where you're basically there, but there's gonna be obviously CPs or closing precedents. And one of them will be FID and any potential capital that would need to come to the table to kind of, depending on where your leverage ratios are at. So it's a process, but I'm excited that new administration's in and we're gonna kick that process off at the end of this month.

27:34 Great. Do you have to get in the chat? Let us know if that answers your question, but I reckon it does. I also referenced Paul, off take agreements. I'm not sure if you had any additional, that was one of my questions. If you've got any additional info about the status of those. Yeah. So I think it's, it's good to note that we continue to send out samples. Ken has been doing some heavy lifting over in the Asian markets and multiple specialty glass manufacturers that product has now gone out to in the samples. And I think that is the offtake agreements and the form of offtake is one of the agenda items at the end of this month that I want to talk to XM about. Because listen, this is a market that the boron market needs a new supply of boron. It is an oligopoly where you have 2 very large companies that dominate 85% of global supply with very large healthy balance sheets. And one's essentially a government entity. So both of these have the balance sheets to really set their offtake agreements that can, listen, their pricing causes are gonna be subject to market.

28:34 And market provisions wouldn't be bankable for 5E and XM. So it's really, really important that we get this part right and ensure we have a form of agreement that's gonna work for XM. And so I think there's that piece and then you have the by-product piece. And so we have a parallel process on calcium chloride because ultimately the price we get for calcium chloride dovetails right into our model, which is going to drive what's the price or for we can offer on the offtake side. So the 2 go hand in hand. And I think discussions are good. Like, there's very supportive customers that Mark's talking to, but we want to get that right with the XMDs.

29:25 Makes sense. On byproducts, actually, somebody wrote in over email, asking what byproducts you're considering long term to expand the product portfolio? Yeah, so I think it's... It culminates a calcium boron based mineral and so with... You could almost argue the calcium chloride is going to be a primary product as well, but we view it as a byproduct that will produce a sizable amount of calcium chloride. But we also have a very good magnesium stream, and that's coming out today in our metals waste. It's in our interest to get sharp on monetizing that in the future. There is lithium chloride there, albeit smaller size, but it's no, no, no, indeed it's there. And then, you know, we've previously been asked what's the, what boron derivative would be focused on first and that, you know, there's collective alignment that that would be boric oxide.

30:21 Thank you. Another question was written in on email, obviously to the best of your ability, and to some degree it's crystal ball gazing. Somebody asks, what do you anticipate the 5E share price will be in 24 months time. So it's tough for me to really predict and, you know, give a number for the stock price. But I can say this as I reflect upon this transaction, I've thought a lot about this over the last couple months, and I follow the share price and like it's apparent we're getting no credit for any intrinsic value. Our market cap today has been approximately $40 million. Well, if you think about it, we have an enterprise value on a book basis of 120 million. And that's because we have 82 million in convertible note now 87.

31:10 So approximately 120,130 million in enterprise value book value. And my hope is that with a successful vote and equitization, market cap essentially reverts back to enterprise book value of the business. And as we continue to operationally deliver, Mark and Kenneth do their part commercially. My belief is that the market should begin to transition to become a forward-looking view of the business and we begin to get intrinsic value. And I think having a healthy capital structure while we deliver on the ground really can help drive that share price higher.

31:56 Listen, it's tough for me to predict the future, but that's my holistic view of where we should be. Maybe an add on to that, Paul, is obviously once we get to the end of FAL 2, we'll then be looking at an updated technical report. That will give us an updated NPV on our first project but obviously then a line of sight on the second and third projects and obviously that starts to set out your stall for what is the present value of those 3 projects. And as Paul was kind of alluding to, then the inherent promise that the share price ought to be looking at.

32:45 Thanks for that additional context. David from the chat asked, and I'll throw it to both of you, whoever would like to answer. What confidence can you have minority shareholders that their interests will be protected given note holder board presence? Let me do this, Paul. Maybe I can tell you a little bit of a story to seek to address this question, which is, in the early phase of the discussion that we have held that have led to this restructuring, I had a conversation at one point early on with John Wilder who's the chairman of Bluescape and I made very clear to him and I think most of you on the call probably know that I was originally nominated by BlueSky.

33:36 And I was very clear to him. I said, look, I understand kind of where you potentially want to go, but I have to represent the shareholders here. I am not representing your interests whatsoever." And I give him credit and he said, that's your job. And it is indeed my job. And going forward, I continue to see it that way, that it is my job and the board's job to look after all the shareholders and obviously when you're in a position where you've got a majority and minorities you need to give very special attention to making sure that those minority shareholders are appropriately looked after.

34:22 And I can guarantee you that I view that as my role and the role of the rest of the board also. Thanks, Graham. I got time for 2 more questions and I'll throw it to Graham and Paul to you guys for last words. T Sullivan in the chat asks, is the next shipment of Bork Acid another 20-odd sac shipment or a larger shipment for a different type of customer testing? Thanks, Tate. Glad to have you here. So this will be specialty glass out of Asia, and it'll be about that size. I think 22 Super Saks fits on the truck, but I think 18 fits on a boat. So it'll be about that size and it'll be for for glass manufacturing which requires that much lower sulfate and low chlorides.

35:11 Thank you. One last question, CWW in the chat they ask Or they know there are many discussions regarding a realtor insurance. They're curious what the current status is of those discussions. Yeah, I think continue to listen where you have most mining private equity firms across the world in our data room. Love the jurisdiction, like the project, like the asset and the commodity. Just from a differentiation, no one has any royalty or on, you know, plays in their portfolio. So there's groups are keen to continue to progress and talk about talk on the Follow the company and diligence us. I think the it helps Getting to the pre feed because I think you know if any of those mining private equity funds come in, they're coming in because they want to get paid on that royalty stream.

36:06 And listen, that also goes to the company's benefit because we at the same time, a de-risk discount rate on those cash flows comes in. And so I think the As we think about that, they're very thoughtful on, okay, if I'm going to come in with a royalty, the only way I'm getting paid on that royalty is essentially, if a company gets the project up commercially, we start delivering product to customers. I think that's going to be the big milestone to really quickly fast-track that and bring the royalty side together. Awesome. I appreciate that. I just want to emphasize what Paul said, which is, you know, we will get a, the further we go in de-risking the project, the better the deal we will get in a royalty. And obviously we'll have to trade that off in terms of, you know, how long we wait before we pull that trigger.

37:04 But certainly, you know, we don't want to do that like now because we'd be playing through the nose relative to where we'll be in 6 months or so. Great. So I'll say for everyone who's in the room live and for those watching on the recording, Thanks so much for joining us. Paul and Graham, thanks so much for being on today. I'll throw it to you both for a last word you've got for those watching at home. I can go first. Appreciate everyone's time today. Listen, not the sweetest deal, but I understand too that, or at least I can tell you there's, we're gonna pick up right where we left off in 2024 and roll that into 2095. I know our team is highly motivated, was up at site yesterday, milestones continue to be hit, and we're focused on delivering.

37:55 Nothing really to add, just appreciate all of you being on this call and of being investors with us. We're going to do our absolute best to continue to build on where we are right now. Awesome. Gentlemen, thank you