Westwater Resources, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unaudited results; dollar amounts below are in millions unless stated otherwise. Westwater is an exploration and development company focused on uranium, graphite and lithium and reported no operating revenue in either comparable period.
Financial performance and position
| Metric | Q2 2019 / June 30, 2019 | Comparable period / change |
|---|---|---|
| Revenue | None | None in Q2 2018 or first half 2018 |
| Net loss | Q2: $2.775; first half: $5.949 | Q2 2018: $20.457; first half 2018: $23.876 |
| Loss per share | Q2: $1.81; first half: $3.95 | Q2 2018: $25.63; first half 2018: $35.14 |
| Operating expenses | Q2: $2.933; first half: $5.552 | Q2 2018: $20.736; first half 2018: $24.246 |
| Cash used in operations | First half: $4.324 | First half 2018: $6.090 |
| Cash provided by investing | First half: $2.786 | First half 2018: $0.026 |
| Cash provided by financing | First half: $1.153 | First half 2018: $4.725 |
| Cash and cash equivalents | $1.156 | $1.577 at December 31, 2018 |
| Restricted cash | $3.768 | $3.732 at December 31, 2018 |
| Working capital | Deficit of approximately $2.7 | — |
| Total assets / liabilities / equity | $28.216 / $12.116 / $16.100 | December 31, 2018: $29.958 / $9.167 / $20.791 |
Restricted cash is pledged for performance bonds and is not available for general corporate needs. The filing reports no operating margins because there was no revenue. It does not report conventional funded debt; asset-retirement obligations were $6.026 million, including $0.881 million current. Operating lease liabilities totaled $0.547 million.
Material changes and unusual items
- Losses were substantially lower than in 2018 mainly because Q2 and first-half 2018 included a $17.968 million impairment of Turkish uranium properties. The Turkish licenses had been revoked in June 2018.
- First-half 2019 included a $0.720 million loss on sale of Laramide securities. Westwater also received $0.750 million in cash on the Laramide note during the half-year and sold Laramide shares and warrants.
- Operating cash use declined by $1.766 million year over year, primarily reflecting higher payables and accrued liabilities, which increased cash from working-capital changes by about $1.6 million.
- Westwater adopted lease accounting in January 2019; at June 30 it reported a $0.541 million right-of-use asset and $0.547 million lease liability.
- A 1-for-50 reverse stock split took effect April 22, 2019. Share and per-share figures in the filing reflect the split retrospectively.
Liquidity, outlook and risks
- Management stated that substantial doubt exists about the company’s ability to continue as a going concern. Westwater has recorded no operating revenue since 2009, expects continuing losses and relies on equity financings, debt financings and asset sales. It warned that unavailable or insufficient financing could require it to delay, reduce or curtail operations.
- At June 30, cash was $1.156 million and working capital was negative approximately $2.7 million. The company said it needed working capital for reclamation, property holding costs, business development and administration.
- Westwater expected $1.25 million at closing from the sale to Uranium Royalty Corp. of four uranium royalties and the $2.0 million Laramide note, for a stated total purchase price of $2.75 million. URC had paid $1.5 million in deposits; the amended closing deadline was August 30, 2019, subject to closing conditions. The deposit was recorded as a liability, not income, pending closing.
- Funding options included a Lincoln Park facility allowing up to $10.0 million in stock purchases over 24 months, and a Cantor at-the-market program with $23.8 million of stated remaining capacity, but no shares then registered for sale under it. The filing noted Westwater was not then eligible to register additional shares on Form S-3. These facilities entail equity issuance and potential dilution.
- The company intends to pursue project financing for graphite product development and potential pilot and commercial facilities, and financing or joint-venture partners for discretionary lithium exploration. No specific production, revenue or earnings guidance is provided.
- Westwater is pursuing ICSID arbitration against Turkey over the cancellation of its Temrezli and Sefaatli uranium licenses. The panel was established; the outcome, timing and any recovery were uncertain. The company said it would recognize compensation only when fixed, determinable and probable of collection.
- Management cited commodity prices, access to capital, permitting, exploration results, operating conditions, weather and legal or regulatory matters among key risks. Texas reclamation work was ongoing; the company estimated $0.9 million of current reclamation obligations through March 2020.
Important facts for investors to verify
- Whether the URC transaction closed by the amended deadline and whether Westwater received the final $1.25 million.
- Actual cash runway, near-term obligations and subsequent equity sales; distinguish pledged restricted cash from available cash.
- Financing availability and dilution under the Lincoln Park and Cantor arrangements, including registration and Nasdaq constraints.
- Progress, cost and potential recovery in the Turkey arbitration, and any change in the carrying value or status of the affected assets.
- Per-share loss figures: the financial statements report Q2 and first-half 2019 losses per share of $1.81 and $3.95, while MD&A cites $1.79 and $3.93. Confirm the correct figures. The filing also reports 1,658,211 shares outstanding at June 30 and 1,858,211 at August 2, 2019.