Westwater Resources, Inc. (identified in this filing as Uranium Resources, Inc.) — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless noted. The filing reports no revenue for the quarter or six-month period.
Business context
The company was an energy-metals exploration and development business, pursuing lithium exploration in Nevada and Utah while retaining uranium assets in Turkey, Texas and New Mexico. It sold subsidiary Hydro Resources Inc. (HRI), which held the Churchrock and Crownpoint projects, to Laramide Resources on January 5, 2017.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Net loss | $2.639 | $4.607 | $0.795 | $8.880 |
| Basic and diluted loss per share | $0.11 | $0.75 | $0.03 | $1.60 |
| Operating expenses | $3.330 | $3.849 | $5.937 | $6.927 |
Margins are not meaningful because the company had no revenue. The six-month loss improved substantially, largely due to a $4.927 million gain on the HRI disposal and lower interest expense and general and administrative costs. The three-month improvement also reflected lower interest expense and no comparable uranium-property impairment charge.
- Cash and cash equivalents: $7.152 million at June 30, 2017, versus $3.309 million at December 31, 2016. Restricted cash was an additional $3.941 million.
- Working capital: $8.4 million at June 30, compared with a $4.3 million deficit at year-end 2016.
- Cash flow, six months: $6.334 million used in operations; $1.973 million provided by investing activities; and $8.204 million provided by financing activities. Ending cash was $7.152 million.
- Debt: The remaining $5.5 million RCF convertible loan was repaid on February 9, 2017. No balance remained at June 30. The repayment resulted in a $39,000 extinguishment loss.
- Balance sheet: Total assets were $63.415 million, liabilities $7.281 million and stockholders’ equity $56.134 million. Asset retirement obligations totaled $5.022 million.
Material changes and unusual items
- Two equity financings in January and February raised net proceeds of $8.9 million and $4.5 million, respectively. The company also established a $30 million at-the-market (ATM) equity program; by August 11 it had sold shares for $0.8 million net, with approximately $29.2 million remaining available.
- HRI sale consideration included $2.5 million cash, a $5.0 million secured promissory note, Laramide shares and warrants, and a retained 4% net smelter return royalty. The company recorded the note at fair value; its balance-sheet carrying amounts were $1.5 million current and $2.364 million non-current. The royalty was assigned no fair value because of development, commodity-price and marketability uncertainties.
- The HRI disposal produced the $4.927 million gain. Laramide’s note principal payments begin in January 2018; interest is not payable until March 31, 2018 under the stated terms. Laramide may satisfy up to half of certain principal payments in shares.
- Mineral property expenses rose to $2.321 million for the first half from $1.869 million, mainly reflecting higher land maintenance and holding costs. The company added a Railroad Valley lithium project and expanded Columbus Basin claims through an option agreement.
- Marketable securities had a $591,000 unrealized fair-value decrease in Q2, recorded in other comprehensive loss; the six-month decrease was $161,000.
Outlook, risks and contingencies
Management expected June 30 working capital to fund liquidity through March 31, 2018, and said the ATM program together with existing working capital was expected to fund operations through 2018. The company also planned to pursue additional financing, monetize non-core assets and reduce cash expenditures. Management cautioned that financing might not be available on acceptable terms or in sufficient amounts; if unavailable, business plans might need to change materially. No specific production, revenue or resource guidance was provided.
Key risks include access to capital, uranium and lithium prices, exploration and development uncertainty, permitting and regulation, foreign operations, project operating conditions, and geological, environmental, legal or weather-related issues. The company reported that it believed operations were materially compliant with environmental regulations. The Texas Supreme Court granted review in the Kleberg settlement dispute, with oral argument scheduled for October 12, 2017. A separate Kingsville facility permit proceeding was resolved after withdrawal of the application and payment of approximately $16,683.
Management concluded disclosure controls were effective as of June 30, 2017. The filing reported no material change in internal control over financial reporting during the quarter and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the company identity and corporate-name history: this 10-Q is filed by Uranium Resources, Inc., although the request metadata names Westwater Resources, Inc.
- Assess whether available cash and ATM proceeds can support the stated operating runway, given ongoing operating cash outflows and the risk that future financing may not be available.
- Monitor collection and timing of Laramide note payments, the note’s interest terms, and the market value/liquidity of Laramide shares and warrants received.
- Review future dilution from equity issuances and the ATM program; shares outstanding increased materially during the first half.
- Track lithium exploration results, project spending, uranium project status, and developments in the remaining legal dispute.