Westwater Resources, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Financial amounts below are in U.S. dollars; statements present dollar amounts in thousands unless otherwise noted. Share and per-share data are retroactively adjusted for the 1-for-50 reverse split effective April 22, 2019.
Business context
Westwater is an exploration and energy-related materials development company with uranium properties, the Coosa graphite project in Alabama, and prospective lithium properties in Nevada and Utah. It reported no revenue in either Q1 2019 or Q1 2018 and has not recorded operating revenue since 2009.
Financial performance and position
| Metric | Q1 2019 / March 31, 2019 | Comparable period / December 31, 2018 |
|---|---|---|
| Revenue | $0 | $0 in Q1 2018 |
| Net loss | $3.174 million; $2.15 per share | $3.419 million; $6.11 per share in Q1 2018 |
| Operating expenses | $2.619 million | $3.510 million in Q1 2018 |
| Operating cash flow | $(2.740) million | $(3.696) million in Q1 2018 |
| Investing cash flow | $1.786 million provided | $0.628 million provided in Q1 2018 |
| Financing cash flow | $0.414 million provided | $0.651 million provided in Q1 2018 |
| Cash and cash equivalents | $1.019 million | $1.577 million at December 31, 2018 |
| Restricted cash | $3.750 million | $3.732 million at December 31, 2018 |
| Total assets | $28.206 million | $29.958 million at December 31, 2018 |
| Total liabilities | $10.076 million | $9.167 million at December 31, 2018 |
| Stockholders’ equity | $18.130 million | $20.791 million at December 31, 2018 |
Margins are not meaningful because the company had no revenue. The balance sheet shows a working-capital deficit of approximately $0.7 million; management describes it as approximately $1.0 million. Restricted cash is pledged for performance bonds and is unavailable for general corporate obligations. The filing reports no conventional interest-bearing debt; liabilities include asset-retirement obligations and operating lease liabilities. Asset-retirement obligations totaled $5.994 million, including $0.894 million current. Operating lease liabilities totaled $0.575 million.
Changes versus the prior comparable period
- Net loss narrowed by $0.245 million, while operating expenses fell by $0.891 million. Lower mineral-property expenses and the absence of the prior-year $0.755 million acquisition cost contributed to the expense decline.
- The improvement in net loss was partly offset by a $0.720 million loss on sale of Laramide securities, compared with a $0.093 million loss in Q1 2018. Q1 2019 included $0.166 million of interest income.
- Operating cash use improved by $0.956 million, primarily because Q1 2018 included nonrecurring Alabama Graphite acquisition costs. Cash nevertheless declined by approximately $0.540 million during Q1 2019.
- Per-share loss improved, but weighted-average shares increased to 1,478,233 from 559,357. The filing’s share and per-share data reflect the later reverse split; the share-count change affects comparability.
Outlook, commentary and key risks
- Going concern and funding: Management states there is substantial doubt about the company’s ability to continue as a going concern. It expects continued losses and relies on financings and asset sales. Management cited an average cash expenditure of about $1.0 million per month in 2018, expected to continue in 2019.
- Expected funding: The company agreed to sell four uranium royalties and the remaining Laramide note to Uranium Royalty Corp. for $2.75 million: a $0.5 million deposit received at signing and $2.25 million due by June 30, 2019 or earlier, subject to closing conditions. It also filed a registration statement for a proposed public offering of up to $10.0 million gross proceeds. Neither future proceeds nor financing availability is assured.
- Nasdaq listing: After failing to regain minimum-bid-price compliance, the company appealed a Nasdaq delisting determination; a hearing was held May 2, 2019. The reverse split helped the share price meet the bid-price threshold for 10 consecutive trading days by May 6, but continued listing remained subject to the panel’s decision.
- Projects and development: The company plans to seek project financing for graphite product development and proposed pilot and commercial facilities. It is also pursuing potential project financing or joint-venture partners for lithium exploration. These plans are subject to funding, technical, permitting, market and execution risks.
- Turkey dispute: Turkey revoked the Temrezli and Sefaatli uranium licenses in 2018. Westwater has filed for ICSID arbitration; timing and amount of any compensation are uncertain, and no compensation was recognized.
- Other notable matters: Westwater reported vanadium indications at Coosa, but has no known vanadium or lithium reserves. Texas reclamation work continues; the company expects further work and possible bond releases in 2019. The $0.5 million royalty-sale deposit is recorded as a liability until closing conditions are met.
- Risks: Principal risks include inability to raise capital, possible Nasdaq delisting, dilution from equity financing, volatile commodity prices, exploration and processing uncertainty, permitting and environmental obligations, and potentially significant reclamation costs. The company reported no off-balance-sheet arrangements.
Investor verification priorities
- Confirm whether the Uranium Royalty Corp. transaction closed and whether the $2.25 million balance was received.
- Check the outcome of the Nasdaq appeal and the company’s ongoing listing compliance.
- Verify whether the proposed public offering or other financing was completed, and assess resulting dilution and available cash runway.
- Review subsequent cash burn, working-capital needs, and funding for reclamation and planned graphite and lithium activities.
- Track the ICSID arbitration, including any developments on liability, timing or potential compensation.