Investing in Supply Security and Global Decarbonization with J.T. Starzecki

 

Boron is the second strongest material in the elemental chart, only second to diamonds. Given its incredible resistance, it is found in almost everything: fiberglass, insulation, batteries, motors, and even carpets. Despite these applications, Boron usually sits in the background and is rarely used. But for J.T. Starzecki and their entire team at 5E Advanced Materials, it could be the next lithium. Joining Victoria Meyer, he talks about their sustainable mining operations integrated with a boron acid production facility, saving them time from digging and creating hundreds of jobs as well. J.T. also shares the biggest challenges their company has faced and the best characteristics of an ideal business partnership.

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Investing in Supply Security and Global Decarbonization with J.T. Starzecki

In this episode, I’m speaking with JT Starzecki, who is the Chief Marketing Officer for 5E Advanced Materials. JT has extensive experience in mining and minerals focused on market development, raising capital, business strategy, and product placement. Prior to joining 5E, he was the Chief Marketing Officer for Anglo-American Crop Nutrients, focused on building the largest greenfield fertilizer mining operation around the world. Now, he’s with 5E, which is a new company that we’re going to learn a little bit more about. JT, welcome to the show.

Victoria, thanks for having me.

What’s your origin story? How did you get involved in this space? It seems like a lot of this space for you has been mining companies. How does that tie into specialty chemicals?

Like anybody, things come around, and you take an opportunity that leads to something else. My background in university was in technology. It was in market development, workflow automation, and things like that. I had been working with an individual who had made a shift over into the mining sector. I got a phone call one day, and he said, “I want to talk to you about something that we’re working on, a project in Australia.

There are a couple of different things in the United States. See if you’re interested in it.” My response was, “I’m willing to listen,” but I wasn’t really sure because my career was on track and was going well in the tech sector. At the end of the day, it was an opportunity that I decided that I was going to take a chance on. I thought, “If it doesn’t work, I can always go back to technology. If I can do it for a year, we’ll see what happens.” That was many years ago.

 

 

Time flies when you’re having fun.

It’s allowed me to broaden my experience across the globe. I’ve met some amazing people. I’ve worked on some amazing projects. It’s not always easy. If it were easy, everybody would do it. It has been absolutely rewarding. I made the leap into the mining operation. Specifically, mining for fertilizers has a direct correlation to the chem business. There are a lot of different overlaps when it comes to inputs into the end use of a particular product. You see a lot of large-scale chemical producers also have downstream businesses that sit into the fertilizer space. There are a lot of correlations there. What we ended up doing in my previous company Sirius Minerals, was nothing short of amazing in the sense that not a lot of new greenfield fertilizer operations came into play.

We ultimately had to redefine the market to a degree. We were bringing a set of crop nutrients into the market that was well recognized but not in the same form factor. Not only did we have to build and finance a large-scale mining operation, but we also had to educate the market and build a market for a product that hadn’t existed on a large scale. You start to then build relationships in the traditional fertilizer space. When you get out into the global fertilizer market, most companies that end up producing some large-scale fertilizer also have some chemical or petrochemical offshoot that is part of those overall operations.

Now you’re at 5E Advanced Materials. Tell us about 5E, what it is, and where you guys are going.

5E is one of the more intriguing stories out there. I get it. It’s my job to promote our organization. In this world nowadays, specifically in the domestic supply of critical materials and decarbonization sustainability space, when people think about that space, lithium automatically jumps into their heads. Lithium is the sexy thing that’s out there. There are a lot of lithium startup companies that are out there. Our domestic supply of lithium isn’t as large as one would think. It’s not nearly as large as it needs to be to supply all the anticipated growth for electric vehicles. People tend not to think about some of the other key materials in that whole EV space.

Rare earth gets a little bit of press, and that’s a growing market opportunity. What doesn’t get any press is boron, and that’s what we do. Boron is in a lot of products that we use on a day-to-day basis. It’s actually a micronutrient, so it’s in the fertilizer space. It’s in the food we eat. It’s in the screens that sit on all of our smartphones, like Gorilla Glass. It’s used in fiberglass, insulation, carpet, steel production, permanent magnets, and motors. It has a wide application. It’s just one of those things that sit in the background, but it’s never used.

Boron is a micronutrient with a wide application. Nevertheless, it usually just sits in the background and is never used. Click To Tweet

What we have at 5E is we have a large-scale, long-life operation that we’re building that will produce a significant amount of boron, boric acid, and boron derivatives. We also have lithium carbon on stream too as well. We play in that space, but we are a battery materials long-term sustainable operation. That was the draw for me. The draw to come over and join the team was to be in the next big thing. We have a strong belief that boron is the next lithium. We’re excited about what we’re doing here at 5E.

I would say maybe boron is the next carbon. When you think about the chemical industry, many of the chemicals we use have carbon as the backbone. Carbon is the building block. We’re all accustomed to that. Everything’s coming off a carbon chain. As you talk about boron in use, it’s all around us as well. Unless you’re working on it, you don’t necessarily realize that you just take it for granted. The growing demand as it relates to EVs and all the technologies that we have certainly created that platform for growth.

It extends beyond just the EV sector. Look at wind or the solar sector. The glass on the solar panels, that’s a borosilicate glass for its resistance to the elements, the wind turbines themselves. Boron plays a role in creating the permanent magnets in the motors that turn the turbines, but the blades themselves have components of boron in it because boron is the second strongest material on the elemental table next to diamonds. It adds a resistance layer to all of these other decarb applications.

Boron, back in the day, was a very GDP-style growth product. It was in detergent and cheap insulation that goes into old homes and things like that. It’s now the application of these future-facing technologies. It has biotech applications, advanced pharmaceutical applications, and cancer treatment applications. There are some similarities in its broad-reaching use as other carbon-based technologies as we move into what we’re calling the energy revolution or the next step in that clean tech green tech space that is driving our economy.

Let’s talk about that. 5E is focused on boron and lithium, which is the intersection of some of the global megatrends. We talk a lot about it on the show and elsewhere. Decarbonization is tied to sustainability, food security, and the domestic supply of critical materials, which is a hot topic. We’ll come to that later. For you and 5E, when you guys are thinking about as you’re coming into the market, what’s your primary focus initially?

There’s probably a good transition to the domestic supply argument. Now there is so much press, funding, and push from our government to not only look at how we process those materials here but how we explore for and mine those materials. Mining is a sensitive topic. It’s an extractive industry. It’s a sensitive topic that is looked at almost on a state-by-state basis. You have more mining-friendly states and less mining-friendly states. Our project is a mining-friendly community in Southern California because it sits in the Mojave Desert. That is one of the key drivers for our business because it plays into where a product is going to go. You’ve got to have a home for your product.

 

Also, we have to finance and build the larger scale facilities. Now there’s a lot of funding available for these types of projects, so not only does a company mine the materials here, but it can process the materials here and ultimately sell the materials here. We fit into that domestic supply mega trend right at the core of what we’re doing.

When you say friendly mining community in California, that would not naturally resonate with me. That’s surprising to me, actually, because most of us look at California and think it’s anti-industrial in a lot of ways. It wants to reap the benefits of new technologies, old technologies, and all the things chemicals go into, like boron, boric acid, lithium, and all those things. It wants to reap the benefits but doesn’t want to pay the price in the sense of having its production in its backyard. Tell me more. How has this worked out for you? I’m surprised that you could get permits to build and do the things you’re doing. How has that been received?

It’s interesting because the state of California has already implemented a lithium tax, yet they don’t have any lithium production on stream now. You’re spot on when you say they want to reap the benefits of it. San Bernardino County, where we are, has multiple producing mines there. Part of what has led to the approval and our opportunity to build a world-class operation there is you’re in a community where it’s not densely populated. Certainly, that plays into the whole, “Not in my backyard,” concept, which is what extractive industries can be plagued with. We sit legitimately in the Mojave Desert. There are high rates of unemployment. There are not a lot of opportunities for the next generation.

When you have opportunities for extractive industries or mining industries to come in, if it’s done in a different capacity and not done in the old school open pit high strip ratio ugly large scale, and there are some of those, there are some opportunities. We’re blessed with a geological setup that allows us to build a sustainable long-term mining facility with a very low carbon footprint. What I mean by that is the majority of what we’re doing is underground. The ore body itself sits between 1,300 and 1,500 feet below surface. We’re drilling small 6 or 8-inch diameter injection and extraction wells where all of the processing itself from extracting the mineral takes place below surface.

You don’t see anything going on. You obviously then have to bring that up. You have to crystallize it and put it into a form factor that you could ultimately sell. We’re going to do that in an area where we’re going to add 300 to 400 well-paying, highly skilled jobs and will bring some economic infusion into the area. We are actually substantially permitted. We have all of our federal permits in place. We have state permits in place, which are air and, most importantly, water when you’re building a project in the desert.

 

We’re very fortunate in that we have aquifers that sit within our operation that is designated for non-human consumption and non-agricultural use. That’s only slated for industrial use, which is great for us. We’ve got some county permits that allow us to construct the project. It is counterintuitive when you think of California broadly, but where we are specifically positioned is actually a mining-friendly community.

You guys are building a conversion of boric acid at that same site.

We’re fortunate in the sense of how we’re mining. We’re mining in situ leaching. You essentially inject a very highly diluted hydrochloric acid into the ore body itself. It sits in a casing. It’s injected into the ore body and dissolves the ore body. You pull it back out into what you call a pregnant leach solution, which is a solution that has all the minerals in it. We then run it through a crystallization process, which essentially kicks out the boric acid, lithium carbonate, and some gypsum. We have beneficial processing and mining operation that gives us a second derivative product rather than having to dig out raw or process it into a second. We don’t add that second step. It’s essentially built in. We have a boric acid production facility built into the mining operation.

I didn’t realize. That’s not my land of chemicals. My land of chemicals is in the carbon space. That’s interesting to me how that all plays out.

We’re writing the playbook on in situ leaching operations for boric acid. You have in situ leaching operations all over the globe, and it’s used in every operation you would see. With uranium, mining is done that way. There’s potash mining that’s done that way. Essentially, our ore body is a potassium-based boron or borate ore body. It will react very similarly to some of the in situ potash mining solution mining operations.

How does decarbonization fit into this? I know that’s a big part of the value driver for you guys as well.

Think of our sustainability program and our decarbonization efforts in two veins. The mining operation I talked about is environmentally friendly in the sense that it’s not a massive challenge eyesore. We don’t have significant emissions. We have a closed-loop system. About 95% of what we utilize is recycled back through the system, which means we’re not in a significant drop in water. We’re not going to have to have endless amounts of hydrochloric acid. Our mining operations itself have a very low carbon footprint. The boric acid and the boron derivatives we use have a wide application in decarb technologies.

 

As I mentioned earlier, wind turbines encompass a lot of boron through the construction of the blades, through the permanent magnets that sit in the motors, and the boric silicate glass placed into solar panels. Specifically, there’s a well-known report out there by Credit Suisse that looks at the forecast of boron demand moving forward. The majority of that growth is coming all in decarbonization applications.

There’s upward pressure on the price points because of these future pacing technologies. What that’s going to mean for some of these lower-end products is they’re going to have to find something else to utilize. I don’t want to use the word substitute because there is no natural substitute for boron, but those lower-end applications will fall off because the demand for boron is going into solar, wind, and EVs. That’s how we play in the carbonization arena.

That makes sense. What’s been the biggest challenge for you and 5E as you’re building the business, raising the awareness of the company, and even identifying its ultimate customers?

The biggest challenge we’re facing, at least to date with 5E, is simply educating the market on boron. One of the statements I made earlier is lithium is the sexy thing that’s out front. Nobody knows boron, but boron has just as many applications in the decarb space. We’re spending a lot of time certainly this 2022 educating the domestic market on the importance of boron and the widely used applications of boron. That’s been a bit of a challenge, but it’s a challenge that we’re starting to overcome successfully. That’s been good. We’d go into investor presentations, industry presentations, and specific sector presentations, and people are now starting to understand the value of boron. That’s probably been the biggest challenge that we’ve had to overcome.

Partnerships are going to play a big role for you. I know you guys have already lined up some partners in terms of developing your product lines. What role is it, and how are you looking at partnerships as you go forward?

That’s a great question. It’s fundamental to our business strategy in the sense that if you’re going to build an operation like this, you’ve got to have an outlet for your product. If there’s no end market, that’s an issue. You refer to one of the commercial relationships we have out there with Corning, which is an LOI, to provide them with a certain portion of boron or boric acid. Our commercial partnerships are not just all about where we’re going to move the product. Our commercial partnerships are also part of our funding strategy as well. Because of the products that we have and the value of those products in this market setting, a partner will ultimately come in and play either at a strategic level, in which there’s some strategic investment into our project, or some prepay with our offtake agreements.

I’ve spent a lot of time in that commercial space, and I’ve put a lot of offtake agreements in place in previous lives. We are in a very fortunate position now where we’ve got two product streams that are highly in demand. You look at whether it’s the automotive industry or the OEM industry, generally speaking, fertilizer or crop nutrients industry, all of those industries are now having a problem with procurement. When they look at long-term procurement of products, that’s primary to the concerns they’re trying to overcome now. The commercial side of what we’re doing and our customers and end users are going to play a role in where the product goes, but also in our capital stack and how we’re going to finance a project.

I’ve had conversations with a number of innovative startup businesses, such as yours. One that comes to mind is Avantium. They’re in the plastic space. They’ve got new sustainable technology to replace PET. One of their things is they’ve locked in a lot of partnerships/offtake agreements because that’s clearly a way to generate pull-through and funding. Something that we’re seeing quite a lot as innovators, new technologies, and new companies are coming to market is locking in offtake and also locking in those partnerships and funding in order to continue to secure and develop that.

That’s right. We’re seeing it in a broad variety of sectors. One of the things that we know as an organization is you also have to make sure you put the right offtake in place. You can run and sign up a bunch of customers, and they can commit certain amounts of product or all your product if you want to, but you end up giving away a lot of long-term shareholder value if you do that. I’ve been the beneficiary of really good offtake agreements. I’ve had to deal with bad offtake agreements that give away too much in the early stages. We often get asked by the investment community, “Why haven’t you signed anybody up?” The answer is very simple because it has to be the right one. It has to be a strategic partner that’s going to bring some level of investment to what we’re doing to help move us forward.

What characterizes a good partnership or partner for you? How do you identify the right ones, and what makes that good partner?

Especially where we are in a pre-revenue stage, the name certainly adds a lot of value, knowing that you’re going to want to go out and align yourself with a group that has broad reach and distribution. The one thing you don’t want is you don’t want a customer that ultimately says, “We want a whole bunch of products, but it doesn’t have the ability to utilize or move that product.” In the case of Corning, you’re going to be looking at using our boric acid in the construct of products that they already have in place. They have market penetration. They have market share. Another criteria that you look at is not only if they have the ability to follow through on these offtakes but if they have the ability to utilize it and make sure that it’s being utilized in an effective way.

Align your business with a distributor that has a broad reach. You don't want a customer asking for a whole bunch of your products, but you cannot move the goods to them. Click To Tweet

You also want to look at the ability to create more shareholder value by maintaining or increasing price points. If you’re looking at markets that are essentially going to be saturated in the near future, you limit your ability to have higher price points and return more value to your shareholders. Those are some of the criteria that you look at. You also have to look at financial positions. I use an analogy in the fertilizer space that you have fertilizer producers who historically had a lot of cash to deploy into other infrastructure and production. You have distributors that run off slim margins. They’re not going to be as free-flowing with their cash. Knowing where your partner sits from that perspective is also fundamentally part of that equation.

How important is a product development and innovating new products? Is that something you’re looking for as you look at your partners now and in the future?

We absolutely are. The reason that we call ourselves 5E Advanced Materials is we are not a dig-and-dump operation. We’re not going to just mine all the product and sell it away. We’re ultimately in the business of creating an advanced materials portfolio of products. We have some absolute rock stars in our organization that has been there and done that before. That’s when we look at what we’re going to do over the 50-year mine life. That’s where we’re going to drive as much shareholder value as we possibly can because we’ll develop our own suite of products, or we will be in conjunction with our commercial partners to develop this suite of products that helps us dictate price points. It also helps us dictate where the product flows. It’s a win-win. That’s 100% at the forefront of our thinking.

I know that your leadership team has a lot of experience elsewhere in the industry and elsewhere in specialty chemicals in developing those advanced material solutions. It’s clearly part of that long-term picture for you.

When the company decided that it was going to re-domicile here to the US list on the Nasdaq, the board went through a process with some of their advisors to look at the type of skillsets and the people we needed to bring in. They did a fantastic job looking at people that have been in that specialty chem space of lithium, bromine, and other items. That brings a lot of knowledge, experience, and relationships to the table. You’re right. Our leadership team is stacked from that perspective.

As a new entrant, what is interesting is that 5E has the opportunity to be different. If we look at the chemical industry 100 plus years old, if we look at mining, there’s a certain way that business is done that many companies feel, to a certain degree, stuck in doing business a certain way because that’s their heritage. They’ve grown up in that space. As a new entrant, 5E’s got the opportunity to be different in its approach to business, customers, and markets. How are you guys thinking about that?

That’s an interesting concept, and it’s something that we dealt with at my previous organization too. The chemical industry, much like the fertilizer industry, is very much used to doing business in a certain way. Let’s be honest. It’s been profitable. It works. The shareholders, management, and customers love it, and it’s great, but it’s not how you’re going to sustain things from generation to generation. You’re right. It’s the fact that we have the ability to be more in lockstep with customers where customers have interest in the business as a whole and beyond supplying of product.

Take the auto industry, for example. Nobody would’ve ever sat many years ago and said that the auto industry is going to start to employ geologists on their staff to look at deposits where they’re going to be taking their product and using it in their future production. You would’ve thrown that concept out. You would’ve been looked at like you have five heads.

It’s laughable.

It’s that alignment between the business and the customers that are evolving, and it’s companies like us that are having to push that envelope to have it evolve beyond a simple supplier-vendor-customer relationship that for upstart companies, like any pre-revenue company or upstart companies, trying to have emerging technologies, it doesn’t work that way anymore. We have a chance to be a very significant player in this space that we’re targeting, but we do it in a way that has shifted the paradigm. We’re not the only ones doing it, but when you look at some of our peers in these particular spaces, that’s what we’re trying to accomplish. It’s that redefinition of the vendor-customer relationship that will ultimately change the paradigm.

The alignment between businesses and customers is evolving. It is not just a simple vendor-supplier and vendor-customer relationship anymore. Click To Tweet

What’s next for you and 5E when we look ahead to 2023, which is right around the corner? What should we be looking for?

Big things for us from a commercial and operational perspective, we are building a small-scale facility now that will be mechanically complete by the end of 2022. We’ll need the first quarter of 2023 to commission that plant. As we move into Q2, we’ll be able to start throttling up production from that plant. We’ll have a product that will be coming out. You’ll go through multiple cycles of running to test. You want to get your flow rates right. You want to get your head grade right. You want to get all of that correct. You’re going to see a lot of catalysts in the operations perspective commercially, too, as well. We are in some pretty significant discussions with a variety of customers that are going to help us go to the next step and next part of the evolution of this company.

You’re going to start to see some things from a commercial perspective. We’re very hopeful, given where we are now in our government program, that you’re going to start to see some news flow that will come out of 5E that will start to look at how the government is supporting us from a partnership and funding perspective. 2023 should be a fantastic year. It will be another year of milestones. We hit a lot of milestones in 2022. We’ve got a lot of stuff set up for 2023. We will then go into a process where we’ll start to scope out how we go from our small-scale facility into our large-scale production and operation. 2023 is going to be a great year for us.

That sounds great. JT, thank you so much for joining us. I appreciate that.

I enjoyed it. Hopefully, we’ve been able to raise the spotlight a little bit on boron, and hopefully, our readers will end up taking a look at it and see exactly what boron does in the sustainability industry. Thank you again.

You’re welcome. Thank you. Thanks, everyone, for reading. Keep following, reading, and sharing. We’ll talk to you next episode.

 

Important Links

• 5E Advanced Materials
• Gorilla Glass
• Corning
• Avantium

 

About J.T. Starzecki

J.T. Starzecki is Chief Marketing Officer of 5E Advanced Materials. J.T. is a global business executive, with extensive experience in the junior mining and minerals space focused on market development, capital raising, project finance, business strategy, and product placement. Prior to joining 5E Advanced Materials, he was the Chief Marketing Officer for Anglo American Crop Nutrients, focusing on building the largest greenfield fertilizer mining operation around the world. J.T. has been a Board Advisor/Member to various junior mining companies focused on various minerals including, Gold, Magnesite, Kaolin, Tungsten and Nickel.

 

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