5E Advanced Materials Buys Searles Valley, Targets $40M EBITDA

Key Points

• 5E Advanced Materials completed its $22.9 million acquisition of Searles Valley Minerals’ operating assets, transforming it from a pre-revenue developer into a producer of borates and other industrial minerals while avoiding most legacy liabilities.
• Management is targeting approximately $40 million in steady-state annual adjusted EBITDA, supported by higher V-BOR pricing, $13.8 million in projected annual cost savings, and increased production following the planned SAC plant restart.
• The company expects to approach adjusted EBITDA breakeven in fiscal 2027 and achieve positive consolidated adjusted EBITDA in fiscal 2028, while evaluating expansion opportunities in borates, sulfate of potash, lithium and tungsten.

5E Advanced Materials NASDAQ: FEAM said it has completed its acquisition of the assets and operations of Searles Valley Minerals through a court-supervised Section 363 bankruptcy sale, positioning the company as a revenue-generating producer of boron and other industrial minerals.

Chief Executive Officer Paul Weibel said the transaction shifts 5E from a pre-revenue developer focused on its Fort Cady boron project to an operator of an established Southern California minerals complex. The acquired operations produced more than 1 million short tons of borates, salt, sodium sulfate and soda ash in their last fiscal year, according to Weibel.

The company paid $3.4 million in cash, issued 8.3 million common shares and delivered an unsecured five-year promissory note of approximately $6.2 million, while assuming specified liabilities. Weibel said the total consideration was about $22.9 million and represented roughly $0.05 per dollar of Searles Valley Minerals’ gross fixed assets, before assigning value to mineral resources or potential expansion opportunities.

Operating assets and liability structure

Weibel said 5E acquired operating assets rather than the predecessor company’s balance sheet. The assets include three processing sites, 54 megawatts of on-site cogeneration capacity, the Trona Railroad, a water utility, mineral tenure and brine rights, wells, pipelines, laboratories, equipment and an approximately 257-person workforce.

Legacy environmental liabilities, including California Air Resources Board greenhouse-gas allowance obligations, remained with the seller’s estate, Weibel said. He added that historic debt, creditor claims, workers’ compensation claims and certain uneconomic contracts also did not transfer to 5E.

The company now operates two Southern California production complexes—Searles Valley and Fort Cady—that are 129 miles apart and are supported by one commercial organization, according to management.

Searles Valley’s currently operating Westend facility can produce up to 135,000 tons of borax pentahydrate, or V-BOR, and about 140,000 tons of sodium sulfate, Weibel said. The company also cited a bolt-on industrial salt business and a direct lithium extraction pilot plant. The Trona facility, which is currently idled, has capacity for 45,000 tons of boric acid annually, two furnaces for anhydrous borax and a sulfate-of-potash plant. The Argus plant is largely idled, although its SAC plant is expected to be restarted.

Pricing, costs and volume underpin EBITDA plan

Management outlined a base plan targeting approximately $40 million of steady-state annual consolidated adjusted EBITDA. The plan relies on three operating levers: higher realized pricing, cost reductions and production-volume increases.

Weibel said prior annualized V-BOR output was about 82,000 short tons, with a realized netback of $424 per ton under legacy contracts. Those contracts were rejected through the bankruptcy process, he said. New replacement contracts are expected to generate a V-BOR netback at least 65% higher on a per-ton basis, according to management.

The new agreements include take-or-pay provisions and fixed market-based pricing, Weibel said. The company has contracted roughly two-thirds of production so far and remains in the market for additional sales. At the previous annualized production rate, 5E targets about $57 million in annual V-BOR revenue, he said.

Management expects V-BOR output of 95,000 to 100,000 tons for the remaining fiscal year, compared with approximately 80,000 to 82,000 tons currently. The increase is tied primarily to the planned restart of the SAC plant by the end of the quarter. Weibel said the plant captures natural-gas emissions for use in the brine process, which is expected to add 20,000 tons of annualized V-BOR production and create a sodium bicarbonate byproduct.

On costs, 5E expects to reduce annual operating expenses by about $13.8 million by fully disconnecting from the Southern California Edison grid. Management estimated the needed capital spending at about $500,000. The company said it intends to use its natural-gas-fired boilers for power generation.

Weibel said 5E expects to be near adjusted EBITDA breakeven in the fiscal year ending June 30, 2027, excluding acquisition-related and integration costs, and to reach positive consolidated adjusted EBITDA in fiscal 2028. In response to an analyst question, he said the first year will focus on Westend, while the company expects to restart Trona during year two and maximize boric acid production in year three.

Financing and additional mineral opportunities

The acquisition is supported by $15 million of cash and a $10 million senior secured bridge facility from Searles Valley’s prior owner, of which $7 million has been funded, Weibel said. The company is also evaluating a working-capital debt facility and said its estimated peak pre-financing capital need in the first post-acquisition year is about $24 million.

Beyond its base plan, management cited expansion opportunities in borates, sulfate of potash, lithium and tungsten. Weibel said a borates expansion case could add approximately $38 million in annual adjusted EBITDA, though it is not included in the company’s $40 million base target.

The company is also evaluating tungsten recovery from Searles Lake brines. Weibel cited historical U.S. Bureau of Mines work that estimated approximately 135 million pounds of tungsten in the brines, while noting the historical information is not compliant with SEC Subpart 1300 standards. He said 5E has independently confirmed tungsten in production-process brine samples and intends to conduct further sampling, metallurgical work, engineering and product qualification.

Weibel said Fort Cady remains part of 5E’s longer-term strategy, but the company’s immediate priority is executing the operating reset at Searles Valley and building cash flow from the acquired business.

About 5E Advanced Materials (NASDAQ:FEAM)

5E Advanced Materials, Inc is a critical-minerals company focused on developing domestic sources of boron and lithium. The company is advancing the Fort Cady project in Southern California, a mineral resource intended to support the production of boric acid, boron-derived products and lithium compounds.

Boron is used in a range of industrial and technology applications, including fiberglass, ceramics, glass, agriculture, construction materials and advanced materials. 5E has described its planned product portfolio as including boric acid and other boron specialty chemicals, with lithium potentially recovered as a co-product from the Fort Cady resource.

The company was formerly known as American Pacific Borate Lithium Limited and changed its name to 5E Advanced Materials, Inc Its operations are centered on the Fort Cady project in San Bernardino County, California, as it works toward establishing a vertically integrated U.S.

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