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WTR Insights Conference Takeaways: Critical Minerals and Advanced Materials: From Concept to Execution · WTR Small-Cap Spotlight

• 0:00
  SPEAKER_00: Welcome to the WTR Small Cap Spotlight Podcast.
• 0:04
  SPEAKER_00: I'm your host, Tim Gerdeman, Vice Chair and Co-Founder and Chief Marketing Officer of Water Tower Research.
• 0:10
  SPEAKER_00: Today I'm joined by my Water Tower Research colleague Dimitri Silverstein, Managing Director of Chemicals and Materials Technology.
• 0:17
  SPEAKER_00: On September 22nd and 23rd, Water Tower Research hosted the WTR Insights Conference, and Dimitri hosted six companies from his coverage universe, including Brazil Potash, 5e Advanced Materials, First Phosphate, U.S.
• 0:32
  SPEAKER_00: Elemental, Home Run Resources, and the Metals Company.
• 0:36
  SPEAKER_00: The companies are pursuing very different resources in end markets, but several common themes emerged around the commercialization, project financing, government support, and the growing strategic importance of secure domestic supply chains.
• 0:49
  SPEAKER_00: Today we will discuss what changed across these stories, the milestones investors should be watching next, and get Dimitri's key takeaways from the conference.
• 0:59
  SPEAKER_00: All six presentations are available on demand at Watertower Research.com.
• 1:04
  SPEAKER_00: Dimitri, welcome to the podcast again.
• 1:06
  SPEAKER_01: Thank you, Tim.
• 1:07
  SPEAKER_00: Pleasure to be here.
• 1:08
  SPEAKER_00: Dimitri, let's start out with the big picture.
• 1:11
  SPEAKER_00: You hosted six companies, as I mentioned a minute ago, across critical minerals and advanced materials at the WTR Insights Conference.
• 1:19
  SPEAKER_00: What were the one or two overarching themes you heard across these discussions, despite the companies being at very different stages of development?
• 1:27
  SPEAKER_01: That's a good opening question, Tim.
• 1:29
  SPEAKER_01: I appreciate it.
• 1:30
  SPEAKER_01: Yeah, so as you mentioned, very different companies, you know, ranging from uh potash, you know, fertilizer company like Brazil Potash to uh rare earth and lithium companies and everything in between.
• 1:43
  SPEAKER_01: But um what has emerged from these conversations and and really supported the you know the theme that I've that I've been working on the last few months is the conversation is now increasingly moving beyond sort of defining the resource or doing technical studies on how do you process this particular ore into the final product which you're hoping to get, you know, the proof of concept, all of that is is pretty much been addressed.
• 2:11
  SPEAKER_01: And now these companies are moving towards financing, obtaining the final permits, uh getting, you know, getting their production pre-sold either through binding, off-take agreements, uh, or at least indications of interest, and thinking about construction and ultimately revenue generation.
• 2:27
  SPEAKER_01: I think we're getting to the point of inflection where these projects are starting to move from concept to execution.
• 2:34
  SPEAKER_01: Um the second sort of overarching theme is how much government support is becoming uh a tangible um driver of this industry.
• 2:44
  SPEAKER_01: Right.
• 2:45
  SPEAKER_01: Critical minerals and supply chain policies increasingly showing uh you know, through permitting pathways, through government uh backed financing, through export credit support, various incentives, tax incentives and such that governments are putting in place, that you know, Western governments, whether you're talking about the US or Canada or Brazil or Western Europe or Japan for that matter, are starting to realize or actually starting to put money behind the rhetoric of decoupling from China.
• 3:14
  SPEAKER_01: Uh people are now looking at these assets as national security uh concerns rather than strictly economic.
• 3:22
  SPEAKER_01: Uh, and I think that's driving a lot more investor engagement and more importantly, government engagement uh across governments, across the levels of government, from federal down to state and local levels.
• 3:33
  SPEAKER_01: Uh and the processes are getting streamlined, and these permitting uh pathways are becoming clearer and seem to be moving a lot faster.
• 3:43
  SPEAKER_00: Kind of the analogy I just had in my own head that I think is very apropos for the situation is that uh government support in the U.S.
• 3:49
  SPEAKER_00: went from zero miles per hour to 100 miles per hour in about four to six quarters.
• 3:53
  SPEAKER_00: So it is fascinating to watch this unfold.
• 3:55
  SPEAKER_00: Uh moving on, Brazil potash and first phosphate are both moving beyond proving that they have attractive resources and toward actually financing and building them.
• 4:04
  SPEAKER_00: What changed for those two companies and what are the milestones investors should be watching for next?
• 4:10
  SPEAKER_01: So that's a you know a good observation, Tim.
• 4:13
  SPEAKER_01: So, you know, Brazil potash and first phosphate, at least in the names of the company, sound like they're both uh doing uh fertilizer work, where in fact first phosphate's uh phosphate resource is going to be specifically um targeted towards the LFB battery market rather than the fertilizer market.
• 4:32
  SPEAKER_01: But there are similarities uh where the projects stand and how they're developing.
• 4:37
  SPEAKER_01: From the Brazil potash point of view, these guys already have 21 installation licenses.
• 4:42
  SPEAKER_01: They basically just need one more, uh, and that's for the main power line.
• 4:46
  SPEAKER_01: Uh, and that's going to be handled through the build, operate, own transfer or boot agreements that they've lined up uh for their other uh major infrastructure uh spending, where a utility company will actually pay for and construct this power line, and then uh Brazil Podash over time will sort of pay it off and assume ownership of it.
• 5:11
  SPEAKER_01: So uh, you know, that's moving along.
• 5:13
  SPEAKER_01: Uh we've also seen increasing as a you know, going back to government support, we've seen increasing government support from Brazil now expressed in terms of tax credits, uh in terms of uh sort of tariff relief on imports of equipment that's needed uh to develop these types of mines and these types of projects.
• 5:31
  SPEAKER_01: So the government is clearly realizing that it's not good to be the main exporter or the biggest exporter of agricultural products and yet rely on imported uh uh chemicals, including fertilizer, for 90 plus percent of their needs.
• 5:47
  SPEAKER_01: So I think that's moving together pretty well.
• 5:50
  SPEAKER_01: In terms of first phosphate, you know, they've recently uh uh did a much better, sort of larger uh defined uh resource uh at their Bijin Lamarche uh phosphate resource, the feasibility level mine planning is underway.
• 6:06
  SPEAKER_01: Uh, and now we're looking at basically putting together the investment staff.
• 6:10
  SPEAKER_01: And both companies are ensuring support of their local governments, whether it's Brazil or Canada.
• 6:15
  SPEAKER_01: Uh, in case of first phosphate, it actually goes beyond that into the European uh export import agencies that are offering uh sort of guarantees in the debt.
• 6:23
  SPEAKER_01: So as these stacks come together, these projects should move very rapidly from sort of completing the the front-end engineering work and getting to the final investment decision and actually starting the construction.
• 6:36
  SPEAKER_00: Duly noted.
• 6:37
  SPEAKER_00: So now if I look at 5e advanced materials, arguably they had the biggest change in its investment story with the proposed Cyril's Valley Minerals acquisition.
• 6:45
  SPEAKER_00: How does adding an operating Boreates business change FEME?
• 6:48
  SPEAKER_00: Does it also change how investors should start to reframe how they think about Fort Katie?
• 6:53
  SPEAKER_01: I I think so, Tim.
• 6:54
  SPEAKER_01: Clearly that was, you know, and it happened literally a week before our conference or 10 days before our conference.
• 6:59
  SPEAKER_01: This was news that was pretty fresh as we were doing our conference.
• 7:03
  SPEAKER_01: Yeah, so they they uh Cyril's Valley is a small uh Boreate operator in the U.S.
• 7:09
  SPEAKER_01: Uh Boron market is very highly concentrated, basically.
• 7:12
  SPEAKER_01: Uh two companies account for about 75-80% of the market.
• 7:16
  SPEAKER_01: Uh Cyrils was a small player in the U.S., part of that other 20%, although obviously not all of it.
• 7:23
  SPEAKER_01: The company's been in bankruptcy for some time because of difficult operating conditions.
• 7:27
  SPEAKER_01: So uh 5e is getting it for a very good price, a little bit of cash up front, a little bit of a cash in a payout uh or earnout basis, uh, excuse me, and some stock uh of the company.
• 7:39
  SPEAKER_01: And that instantaneously, um upon closing of this acquisition, will transform them from a resource developer looking to uh get a uh a boron mine into production into actually a manufacturing company with revenues, with profits, with cash flow.
• 7:56
  SPEAKER_01: Um so that materially changes the story.
• 8:00
  SPEAKER_01: Um and if you look at what they're acquiring, obviously they're gonna have an investor call once the deal closes, we'll disclose a lot more detail.
• 8:08
  SPEAKER_01: But I'm actually somewhat familiar with the company already, having covered FMC Corporation, which owned a competing asset in that same uh in that same area.
• 8:17
  SPEAKER_01: So they're getting not just the the sort of the Borates operation, which is which is profitable uh and you know has customer base and uh you know everything that you need from a from an operating company, but they also are picking up some idled or underutilized assets, such as their borat asset plant, which is relatively new, uh the potash plant, uh, which can be brought back online.
• 8:40
  SPEAKER_01: Um they've got mineral rights, rail, so on and so forth.
• 8:43
  SPEAKER_01: So it is a big step in terms of making this company go from a sort of idea on the cum to actually having an operator where part of the 4KD, which is their main boron project in California, part of that development cost can now be borne internally with internally generated cash flow, which would certainly reduce the need for uh for external cash.
• 9:06
  SPEAKER_01: And the key things to watch here is that post-closings, you know, we're gonna look, we're gonna get to see what CERL's normalized earnings and cash flow looks like uh and what the company's strategy is for deploying or or re-energizing this the assets that are currently either idled or underutilized.
• 9:26
  SPEAKER_01: Um, so that that really changes the story for investors.
• 9:30
  SPEAKER_01: It's no longer a development company that needs to be valued on some percentage of a net present value of its resource.
• 9:37
  SPEAKER_01: It's actually going to be an operating company with with EBITDA and revenue that you can value as a normal chemical company would be valued, and then have the Ford Katie as a longer-term development asset uh that can feed the existing business for decades to come.
• 9:54
  SPEAKER_00: It'll be fun to watch how that investment thesis unfolds.
• 9:56
  SPEAKER_00: Um, moving on, home run resources and US Elemental are very different companies, and yet both discussions highlighted how much potential value may exist beyond simply developing the underlying mineral resource.
• 10:08
  SPEAKER_00: What did you learn about those additional value drivers and how close are they to becoming commercially relevant?
• 10:14
  SPEAKER_01: Well, in terms of home run, uh they actually have started uh booking some sales of their raw silica uh sand.
• 10:22
  SPEAKER_01: Uh so that provides early revenue for the company.
• 10:24
  SPEAKER_01: And again, it's a low, low price, not very high margin business, but it does get them into a revenue production.
• 10:31
  SPEAKER_01: Uh, what they are really working on is the high purity or the higher purity silica that will be used uh in solar glass uh plant that they're that they're looking to build.
• 10:42
  SPEAKER_01: But again, they're starting to get some revenue, they're getting customer commitments.
• 10:47
  SPEAKER_01: A lot of their uh sand is already pre-sold at this point, and they're continuing to develop and validate the high purity, low iron content of their quartz being suitable for applications such as Fuse Silica, uh silica carbide, and other higher-end advanced materials that command materially higher prices and offer much better uh longer-term, higher value opportunities in terms of growth and margin.
• 11:18
  SPEAKER_01: Uh, the proof of concept is basically done.
• 11:21
  SPEAKER_01: Uh, they've had pilot scale or bench scale uh tests that show that this is a resource that's very amenable to 3N, in other words, 99.9% purity, 4N, 99.99% purity, and even 5M, uh, which are you know kind of critical for the fused silica and then silicon carbide markets.
• 11:41
  SPEAKER_01: And these are addressing markets that are not just glass or solar glass, even.
• 11:45
  SPEAKER_01: We're talking about semiconductors, we're talking about wafers for semiconductors.
• 11:49
  SPEAKER_01: Uh, you know, we're talking about fiber optic networks, uh, photonics, uh, things that are really cutting edge in terms of growth.
• 11:56
  SPEAKER_01: And this company is positioning itself to benefit from that.
• 11:58
  SPEAKER_01: In terms of US elemental, um, I think the biggest thing to watch here for is the the company number one, the NASDAQ listing, which is which is pending, is going to be a major sort of catalyst.
• 12:11
  SPEAKER_01: But once that's done, uh they're gonna go back and sort of update their their 2024 feasibility study and look at kind of the modern economics of lithium uh processing, uh benefication, things like that.
• 12:24
  SPEAKER_01: And they're looking to actually get uh sort of the costs that were initially associated with that PFS down significantly, uh partly through a sort of co-economics of uh generating some co-products out of that out of that stream.
• 12:38
  SPEAKER_01: Uh just as a reminder, the McDermott resource that uh US Lamento will end up owning once the uh once the deal lists uh is basically in the same caldera as uh Lithium America's uh Thacker Pass project, which is further along, but these guys basically have the same geology, very similar resource size, uh, and are moving, you know, kind of in the same direction in terms of uh project development.
• 13:02
  SPEAKER_00: Thanks for drawing those parallels.
• 13:04
  SPEAKER_00: Uh TMC may be the clearest example of one of the conference-wide themes you mentioned with government policy and supply chain security beginning to affect actual project development.
• 13:14
  SPEAKER_00: What is materially different about the TMC story today, Dimitri?
• 13:17
  SPEAKER_00: And what should investors be watching next?
• 13:20
  SPEAKER_01: Well, I think the two things obviously is you mentioned one of them is permitting.
• 13:23
  SPEAKER_01: Uh, you know, the company has been, you know, has waited for years and years for International Seabed Authority, ISA, which is a UN set-up uh organization, international organization, tasked with developing a uh mining regime in international waters, uh, and hasn't really moved that ball down the field hardly at all.
• 13:43
  SPEAKER_01: Uh, fortunately for TMC, uh, the US regulator, uh, NOAA uh has established uh regulatory pathway that TMC is now following, uh, and they're getting very close to getting a commercial license, uh collection license uh in hand uh probably by you know in another year or so.
• 14:02
  SPEAKER_01: Uh in the meantime, they've gone, uh they've they basically started the deploying the capital for their offshore system, which is a sign of confidence that they have and their partner, all C's have, in getting that commercial license in a very near future.
• 14:19
  SPEAKER_01: And I would say the biggest change is how seriously they're now talking about a US-based uh refining infrastructure, the the onshore part of the business model.
• 14:31
  SPEAKER_01: The Brownsville, Texas facility or or uh territory that they that they're looking at, uh obviously they're not gonna develop that without significant government support.
• 14:40
  SPEAKER_01: And that those conversations are very active and probably, I would say, in the sixth or seventh inning by this time.
• 14:46
  SPEAKER_01: But, you know, going from, okay, we're gonna be capital light, we're gonna have a partner offshore, we're gonna have a partner onshore.
• 14:53
  SPEAKER_01: Right now it's PAMCO that's going to refine these nodules that we collect.
• 14:57
  SPEAKER_01: Well, now they're seriously talking about becoming an integrated vertical supplier, going from nodules all the way to individual metal sulfates in North America and specifically in the US.
• 15:09
  SPEAKER_01: And that's gonna address one of the major, in my opinion, the major um sort of white spot as US tries to decouple from China, and that is processing capacity.
• 15:19
  SPEAKER_01: Um, you don't need as many mines to be domestic.
• 15:23
  SPEAKER_01: Uh, you know, China did not build its dominance by having the best lithium resource or the best nickel resource.
• 15:29
  SPEAKER_01: They build their dominance by building plants that process those ores into the final products.
• 15:34
  SPEAKER_01: So, you know, we're watching for permitting milestones, obviously.
• 15:37
  SPEAKER_01: We're going to continue to monitor the NOAA process.
• 15:40
  SPEAKER_01: Uh, and you know, right now it's in the public comment period, which should close here in a month or so, uh, and then we'll move into a final decision in environmental studies at that point.
• 15:49
  SPEAKER_01: So, you know, it's been a long time coming, but it does look like within uh, let's say 18 months to 24 months, this company will be in production.
• 16:00
  SPEAKER_00: So to close, when you look across all six companies, what developments over the next 12 months will tell you that these stories have genuinely moved into a new commercial stage?
• 16:09
  SPEAKER_00: And what should investors take away from this year's conference overall?
• 16:13
  SPEAKER_01: Well, I would say uh, you know, in terms of milestones, look for money actually being you know getting committed.
• 16:19
  SPEAKER_01: So project debt, export credit agency support, strategic equity partners, government financing.
• 16:26
  SPEAKER_01: Um, you know, these capital decks now need to be built because we're at the stage where the permitting for a lot of these companies is out of the way.
• 16:34
  SPEAKER_01: Uh, you know, the technical proof is there, the resource size is there.
• 16:38
  SPEAKER_01: Uh, so now it's a question of putting together the capital stack to actually have the CapEx to move these projects into production.
• 16:44
  SPEAKER_01: So look for developments along those lines.
• 16:47
  SPEAKER_01: Also, look for commercial proof, things like binding off-take agreements, customer qualifications of products, um, you know, beginnings of recurring product sales.
• 16:56
  SPEAKER_01: We talked about uh home run resources, already starting to see some of that, and strategic partnerships that demonstrate that there is a viable business around the underlying resource.
• 17:06
  SPEAKER_01: Um as far as common denominators across all six, I would say the resources and markets are different, but the next phase is about converting geological and technical potential into financiable, permitted, and commercially validated businesses.
• 17:23
  SPEAKER_01: Uh and I think as long as the government support is there, the pathway is pretty clear.
• 17:28
  SPEAKER_01: Uh, and it's now the question of how much and at what price.
• 17:33
  SPEAKER_00: Dimitri, thanks for joining the podcast today and walking us through your key takeaways from the WTR Insights Conference.
• 17:39
  SPEAKER_00: As a reminder to our listeners, all six company presentations are available on demand at watertowerresearch.com.
• 17:45
  SPEAKER_00: Thanks and have a great day.
• 17:47
  SPEAKER_00: Thank you.
• 17:47
  SPEAKER_00: Thank you for listening, and don't forget to subscribe, as well as visiting WW Watertower Research.com to stay up to speed on the company's small cap written research reports, podcasts, fireside chats, industry specific symposiums, and conference schedules.
• 18:03
  SPEAKER_00: We will see you next time for another edition of the WTR Small Cap Spotlight Podcast.
• 18:09
  SPEAKER_00: Finally, a special thanks to the producer and editor of the podcast, Krista Fitzpatrick.