Westwater Resources, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited. Westwater is developing domestic battery-grade graphite materials and continued construction of Phase I of its Kellyton Graphite Plant in Alabama. The company reported no operating revenue; it says its last operating revenue was in 2009.
Financial results and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | No operating revenue reported | No operating revenue reported |
| Operating expenses | $3.0 million | $2.8 million |
| Net loss | $2.4 million; $0.05 per share | $2.8 million; $0.08 per share |
| Net interest and other income | $0.6 million | $7,000 |
| Net cash used in operations | $3.0 million | $2.7 million |
| Capital expenditures / investing cash use | $34.0 million | $12.1 million |
| Financing cash provided | $1.4 million | $15.5 million |
Operating margins are not applicable because the company reported no operating revenue. The net loss narrowed by $0.4 million, mainly due to higher interest income, lower exploration expense and lower arbitration costs, partly offset by higher product development and general and administrative expenses. Higher product development costs reflected customer sample production; G&A included about $0.3 million in severance related to the former CEO’s departure.
Cash and cash equivalents were $39.7 million at March 31, 2023, down from $75.2 million at December 31, 2022. Total assets were $160.1 million, including $116.0 million of net property, plant and equipment and $101.3 million of construction in progress. Total liabilities were $19.2 million, including $17.8 million current liabilities; the balance sheet reports no conventional borrowings. Lease liabilities were approximately $0.1 million. Stockholders’ equity was $140.9 million. Cash used in investing rose with Kellyton construction spending; accrued capital expenditures were $13.1 million at quarter-end.
Material changes and business developments
- Kellyton construction continued, including site work, utilities, equipment deliveries and plant-building construction. By the filing date, all five processing buildings were complete and ready for equipment installation.
- The company estimates Phase I construction will cost approximately $271 million and reported approximately $102.4 million of project capital costs incurred since inception, inclusive of liabilities at March 31, 2023.
- An optimization study is expected to more than double Phase I’s original throughput capacity of 16,000 metric tons per year; expected CSPG production was stated as 7,500 metric tons per year.
- Westwater entered a joint development agreement with SK On to develop anode material customized for SK On batteries. A potential future agreement for sales of potentially all Kellyton CSPG output remains subject to successful development and further negotiation.
- Westwater sold 1.5 million shares through its ATM facility for net proceeds of $1.5 million, versus $15.6 million of ATM and Lincoln Park proceeds in Q1 2022. As of March 31, it reported up to $19.25 million of remaining ATM offering capacity, subject to Form S-3 limits, and 9.7 million shares available for future sale under its Lincoln Park agreement.
Liquidity, outlook, risks and contingencies
Going concern: Management said planned non-discretionary expenditures through May 31, 2024, together with construction activity and related costs, exceed cash on hand when excluding external funding opportunities and current equity facilities. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern within one year after the financial statements were issued. Westwater expects to rely on additional financing until Kellyton begins operations and is considering equity, project debt, convertible debt, a partnership or a joint venture. It gives no assurance that sufficient financing will be available on acceptable terms. Without funding, it may curtail operations, alter the construction schedule or put Phase I on hold.
Outlook: The filing provides construction and production-capacity expectations but no clear plant commissioning date or quantified revenue guidance. Management cites potential support from U.S. critical-mineral policies and Alabama incentives; these are not assurances of funding, customer contracts or commercial success. Key risks include financing access, construction cost and schedule overruns, inflation, interest rates, supply availability, graphite prices and demand, customer qualification, permits and regulation.
Turkey arbitration: A March 3, 2023 final award found Turkey’s cancellation of Westwater’s uranium-project licenses violated the applicable treaty. The award requires about $1.3 million in damages, approximately $3.7 million in arbitration fees and costs, and interest to be determined. Westwater filed a rectification request on April 14 seeking to increase the investment-cost award from $1.283 million to $2.780 million; no decision date was stated. Receipt and timing of payment are not established in the filing.
Management reported disclosure controls effective at a reasonable assurance level as of March 31, 2023. The company is transitioning to a new ERP system and said it was monitoring its effect on internal controls.
Important facts for investors to verify
- Available cash, actual cash burn, and financing secured versus the construction and operating funding gap.
- Updated Kellyton construction budget, remaining commitments, equipment installation progress, commissioning schedule and the assumptions behind the revised capacity expectations.
- Whether SK On product qualification leads to a definitive customer or offtake agreement and what volume and terms it would cover.
- Remaining usable ATM and Lincoln Park capacity given public-float, market-price and exchange limitations, and potential dilution from future equity issuance.
- Outcome, collectability and timing of the Turkey award, including the pending rectification request and interest calculation.