WESTWATER RESOURCES, INC. quarterly report, Q2 FY2015

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Business context and reporting period

This is Uranium Resources, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2015. The filing identifies the issuer as Uranium Resources, Inc., although the request metadata names Westwater Resources, Inc. The company was an uranium exploration and development business with no properties in production; it had ceased uranium production in 2009 and did not expect significant sales revenue or related cash inflows in 2015.

Financial performance and position

  • Revenue and margins: The statements report no revenue. With no production or sales, operating margins are not applicable.
  • Net loss: Q2 2015 loss was $4.552 million, or $0.15 per share, versus $3.128 million, or $0.13 per share, in Q2 2014. First-half loss was $8.313 million, or $0.29 per share, versus $6.589 million, or $0.28 per share.
  • Operating costs: Q2 operating expenses were $3.895 million, up from $3.318 million. First-half expenses were $6.996 million, approximately level with $7.021 million in the prior-year period. First-half G&A declined to $4.501 million from $4.799 million; mineral property costs rose to $2.101 million from $1.942 million.
  • Cash flow: First-half operating cash use was $5.835 million, compared with $6.783 million in 2014. Investing used $0.774 million, mainly for the Anatolia loan; financing provided $5.524 million. Cash and cash equivalents ended June at $4.485 million, down from $5.570 million at year-end 2014.
  • Liquidity: Working capital was $3.226 million, down from $3.762 million at December 31, 2014. Restricted cash was $3.941 million. Management expected available cash, including proceeds from the Roca Honda sale, to fund current operations through year-end, but anticipated likely needing additional funding in Q4 after the proposed merger.
  • Debt and obligations: The RCF secured convertible loan had $8.0 million principal outstanding, a $5.244 million carrying value net of discount, 10% annual interest, and a December 31, 2016 maturity. Interest is generally settled in shares unless RCF elects cash. Asset retirement obligations totaled $4.333 million. Total liabilities were $13.189 million.
  • Balance sheet: Total assets were $42.546 million and stockholders’ equity was $29.357 million at June 30. Common shares outstanding increased to 29.844 million from 25.193 million at year-end.

Material changes versus prior comparable periods

  • Q2 and first-half losses increased primarily because the prior-year periods included gains on derivatives ($0.806 million for Q2 and $1.460 million for six months); the RCF loan no longer qualified as a derivative.
  • First-half interest expense increased by $0.292 million, largely reflecting the full $8.0 million RCF loan balance compared with lower debt outstanding for much of 2014. Q2 mineral property and G&A costs also increased, including merger-related professional fees and exploration spending.
  • First-half operating cash use improved by $0.948 million year over year, reflecting lower cash G&A spending and working-capital movements, partly offset by exploration spending.

Outlook, transactions, and risks

  • The proposed Anatolia Energy merger would issue approximately 20.5 million company shares; Anatolia shareholders were expected to own about 41% of the combined company. Completion depended on shareholder, regulatory, and court approvals and other conditions.
  • The company loaned Anatolia $779,700 of a facility of up to approximately $1.6 million. The loan matures December 31, 2015, bears 12% interest, and is secured by a pledge of shares in a subsidiary. If the merger fails, Anatolia’s ability to repay may be limited; certain termination circumstances could also trigger an A$319,964 break fee.
  • The sale of remaining Roca Honda assets closed July 31, 2015 for $2.5 million cash, $375,000 in Energy Fuels shares, and other non-cash consideration. The company also paid $150,000 for Butler Ranch historical exploration data in July.
  • Management said additional financing may be needed after the merger and cautioned that financing or asset-sale proceeds are not assured. The company had approximately $6 million remaining under its ATM program as of August 14, 2015; lack of funding could require changes to business plans and risk default under secured debt.
  • Rosita plugging and abandonment was nearly complete in Production Area 1 and approximately 90% complete in Area 2; completion was expected in Q4 2015.
  • NASDAQ notified the company on August 12, 2015 that it failed the $1.00 minimum bid-price requirement. It had until February 8, 2016 to regain compliance; delisting could impair share liquidity and access to ATM financing.
  • Other cited risks include uranium prices and market demand, merger integration and dilution, potential limits on use of approximately $173.5 million of tax NOL carryforwards following an ownership change, permitting and regulatory matters, environmental reclamation obligations, and geological or operating issues.

Important facts for investors to verify

  1. Whether the Anatolia merger closed, its final share issuance and ownership impact, and the repayment or conversion status of the Anatolia loan.
  2. Cash runway after the Roca Honda proceeds, merger costs, and any further funding; confirm the amount and terms of new capital raised.
  3. Progress toward NASDAQ bid-price compliance and continued access to the ATM program.
  4. RCF loan interest and maturity obligations, including any cash-versus-share settlements and covenant or default risks.
  5. Actual reclamation costs and completion timing, and the effect of the merger on tax attributes and future operating plans.