Westwater Resources, Inc. — Form 10-Q Summary
Business context and reporting period: Unaudited results cover the three and nine months ended September 30, 2022. Westwater is developing battery-grade natural graphite processing at its planned Kellyton, Alabama plant and exploring the Coosa graphite and vanadium deposit. The company reported that it has recorded no operating revenue since 2009.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Net loss | $3.5 million | $4.6 million | $9.4 million | $13.4 million |
| Loss per share | $0.07 | $0.13 | $0.21 | $0.42 |
| Operating expenses | $3.2 million | $5.1 million | $9.2 million | $15.4 million |
- Cash and liquidity: Cash was $100.3 million at September 30, 2022, down from $115.3 million at December 31, 2021. Management said cash was sufficient for planned non-discretionary expenditures through Q4 2023; this is not an assurance that the remaining plant construction is fully funded.
- Cash flows, nine months: Operating activities used $8.6 million; investing activities used $32.0 million, primarily for Kellyton construction; financing activities provided $25.6 million, principally from common-stock sales. Capital expenditures were $32.0 million, with a further $16.0 million of accrued capital expenditures at period-end.
- Assets, liabilities and equity: Total assets were $165.2 million, including $64.3 million of net property, plant and equipment and $49.5 million of construction in progress. Total liabilities were $22.1 million, mostly accounts payable ($18.5 million); the filing reports no conventional long-term borrowings. Stockholders’ equity was $143.1 million.
- Margins: Operating and gross margins are not meaningful because the company reported no revenue.
- Share issuance: The company sold 12.6 million shares through its at-the-market program during the first nine months for net proceeds of $25.6 million. Shares outstanding rose from 35.3 million at year-end 2021 to 48.1 million at September 30, 2022.
Material changes versus the prior period
- Net loss narrowed by $1.1 million in Q3 and $4.0 million for the nine-month period versus 2021. Lower product development, arbitration and exploration expenses were partly offset by higher general and administrative costs and foreign-exchange losses.
- Product development spending fell as the prior-year feasibility study and pilot program were completed. Arbitration costs also declined; exploration costs decreased after drilling concluded in April 2022.
- Investing cash outflows increased substantially as Kellyton construction advanced. Cash decreased by $15.0 million over the first nine months, compared with a $68.6 million increase in the same 2021 period.
- General and administrative expense increased, primarily due to higher personnel costs as the company expanded its team. Q3 and nine-month results also included foreign-exchange losses of approximately $0.6 million related to euro cash holdings.
Outlook, risks and other notable items
- Kellyton plant: Estimated Phase I construction and commissioning cost is approximately $202 million, of which approximately $50.5 million had been incurred by the filing date. Management targeted testing and commissioning to begin in mid-2023 and continue through the second half of 2023, subject to financing, supply-chain conditions and other challenges. The company reported having the permits needed for construction; a wastewater disposal permit is still required before operations commence.
- Funding: The company is considering project debt, convertible debt, a partnership or joint venture, as well as further equity financing. It cautioned that financing may not be available on acceptable terms. If funding is insufficient, it may change development plans, delay or pause Phase I construction, or adjust Coosa activities.
- Coosa exploration: Drilling was completed in April 2022, and a resource model was expected by year-end 2022. Potential mining by the end of 2028 is conditional on further study, financing and regulatory approvals.
- Risks: Inflation, labor shortages, supply-chain disruption, rising interest rates, capital-market volatility, geopolitical uncertainty and construction cost or schedule overruns could affect funding and project execution. The company also identified geological, permitting, commodity-price, customer-contract and exploration risks.
- Contingencies: The filing reported no material change to previously disclosed legal proceedings, including the arbitration involving the Republic of Turkey, and stated that it did not expect legal settlements to materially affect financial position, results or cash flows. The company considers itself materially compliant with applicable environmental regulations.
- Other: The Inflation Reduction Act includes a production tax credit for certain critical minerals, including graphite and vanadium; any benefit to Westwater depends on eligibility and future production. Management reported effective disclosure controls as of September 30, 2022.
Key facts investors should verify
- Actual remaining Phase I funding needs versus available cash, ATM capacity and other financing sources, including potential dilution or financing terms.
- Updated Kellyton project cost, construction progress, commissioning schedule, and status of the wastewater disposal permit.
- Completion and results of the Coosa resource model, and whether graphite or vanadium mineralization is economically recoverable.
- Whether the company’s cash runway remains adequate if costs rise, financing is delayed, or project plans change.
- Progress toward customer contracts, expected revenue generation and eligibility for applicable tax credits or incentives.