Westwater Resources, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited results; dollars in millions unless otherwise noted. Westwater is focused on developing battery-grade graphite products from its Coosa Graphite Project in Alabama. It reported no operating revenue and stated that its last revenue from operations was in 2009.
Financial performance and position
- Q2 net loss: $3.48 million, or $0.11 per share, versus $2.47 million, or $0.43 per share, in Q2 2020. The prior-year loss included $1.03 million from discontinued operations; Q2 2021 had no discontinued-operations loss.
- First-half net loss: $8.87 million, or $0.29 per share, versus $5.75 million, or $1.18 per share, in the first half of 2020.
- Operating expenses: $4.71 million in Q2 and $10.29 million in the first half, compared with $1.44 million and $3.60 million, respectively, in 2020. Product development was $2.11 million in Q2 and $3.93 million in the first half; first-half arbitration costs were $1.55 million.
- Investment gain: Unrealized gains on enCore securities were $1.22 million in Q2 and $1.41 million in the first half. The securities’ restrictions had expired by June 30.
- Cash flow: First-half operating cash use was $9.13 million versus $6.07 million a year earlier. Financing provided $77.71 million, primarily from common-stock sales; investing provided $0.23 million. Cash and cash equivalents ended June at $119.14 million, up from $50.32 million at year-end 2020.
- Liquidity and debt: Current assets were $122.56 million and current liabilities $5.18 million. Total liabilities were $5.33 million, largely operating lease liabilities; the filing reports no material borrowing balance. Lease liabilities totaled $0.30 million.
- Margins: Not meaningful because the company reported no revenue. No operating or gross margin value is provided.
- Equity issuance: In the first half, Westwater sold 9.3 million shares through its Cantor ATM for net proceeds of $47.3 million and 5.0 million shares to Lincoln Park for $30.6 million. Outstanding shares were 33.54 million at June 30, versus 19.17 million at year-end 2020; 34.64 million were reported outstanding August 11.
Changes versus the prior comparable period
- Losses increased as product development, exploration, general and administrative, and arbitration costs rose. The absence of uranium and lithium discontinued-operation expenses partly offset those increases.
- First-half operating cash use rose by $3.07 million, while financing cash inflows rose substantially due to increased equity sales.
- Cash rose by $68.82 million from year-end, principally reflecting equity financing. The company remains pre-revenue and dependent on external financing and asset sales.
Outlook, commentary, and risks
- Management said existing cash was sufficient for planned non-discretionary expenditures through 2022. Additional funding may be needed for construction; potential sources include equity, project financing, convertible debt, or a partnership or joint venture. Financing availability and acceptable terms are not assured.
- The Coosa Definitive Feasibility Study was expected by the end of Q3 2021. Construction was anticipated to begin around year-end 2021, with Phase I completion planned for the end of 2022 and operations anticipated in 2023. These are plans, not guaranteed outcomes.
- Pilot work produced approximately 13 metric tonnes of battery-grade graphite products and precursors for testing and to inform facility design and the feasibility study.
- Alabama and local incentives were estimated at approximately $36 million, but realization depends on capital investment, job creation and maintenance, and future taxable income. A July 2021 land lease for approximately 70 acres was a subsequent event.
- Risks include project financing, construction-cost inflation, labor and supply-chain constraints, COVID-19 and variants, graphite and vanadium prices and project economics, permitting, exploration results, and legal or arbitration outcomes. The company retains Turkish uranium interests and is pursuing arbitration; no material legal developments were reported for the quarter.
- Management reported disclosure controls effective as of June 30, 2021, and no material change in internal control over financial reporting during the first half.
Important facts for investors to verify
- Whether the feasibility study, construction schedule, costs, and commercial-plant financing plans progress as stated.
- How long the $119.1 million cash balance will fund operations and construction, considering the company’s continuing cash burn and lack of revenue.
- Whether the estimated Alabama incentives can be realized and what conditions apply.
- Results of customer testing of pilot products and whether production can be scaled to commercial specifications and economics.
- Potential further dilution under the remaining Lincoln Park facility and any future equity or project financing.
- Developments in Turkey arbitration, vanadium exploration, and other contingencies or permitting matters.