Westwater Resources, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Westwater is focused on developing battery-grade graphite products and the Coosa Graphite Project in Alabama. The company reported no revenue; management says it last recorded operating revenue in 2009.
Financial performance and position
Amounts below are in millions of dollars, except per-share data. Because the company had no revenue, revenue growth and operating margins are not applicable.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Operating expenses | $5.110 | $3.341 | $15.400 | $6.939 |
| Net loss from continuing operations | $4.568 | $3.362 | $13.438 | $6.932 |
| Net loss from discontinued operations | — | $6.389 | — | $8.573 |
| Net loss | $4.568 | $9.751 | $13.438 | $15.505 |
| Loss per share, continuing operations | $0.13 | $0.42 | $0.42 | $1.18 |
| Cash used in operating activities | Not separately presented for the quarter | $13.040 | $10.134 |
- At September 30, cash and cash equivalents were $118.969 million, versus $50.315 million at December 31, 2020. Current assets were $122.773 million and current liabilities $5.945 million. Total liabilities were $7.414 million; they included $0.268 million of operating lease liabilities. The balance sheet reports no conventional debt balance.
- Cash increased by $68.644 million over the first nine months, mainly reflecting $81.715 million of net financing cash flow, including $81.865 million of net stock issuance proceeds. Investing cash use was $0.031 million.
- The company has no reported operating gross margin because it had no revenue. Its continuing-operations loss increased year over year in Q3 and in the nine-month period, despite lower total net loss in 2021 due to the absence of 2020 discontinued-operation losses.
Material changes and notable items
- Operating expenses rose as the company expanded graphite product development, exploration, and arbitration activity. Nine-month product development expense was $5.766 million, compared with $1.942 million; arbitration costs were $2.190 million, compared with $0.868 million.
- The company raised $47.3 million net through its Cantor at-the-market facility and $34.6 million net through its Lincoln Park facility during the first nine months. Shares outstanding increased from 19.2 million at year-end 2020 to 34.6 million at September 30, 2021. At quarter-end, $50 million remained available under the ATM and 9,700,252 shares remained available under the Lincoln Park agreement.
- Unrealized gains on enCore shares were $0.507 million in Q3 and $1.918 million for the nine months. Subsequent to quarter-end, Westwater sold those holdings for $3.6 million cash and raised $2.3 million net from Cantor share sales.
- The company received a land grant valued at approximately $1.4 million for its planned Alabama facility, with a corresponding long-term obligation. It also purchased two adjacent buildings for approximately $3.1 million on October 13, 2021.
Outlook, risks, and contingencies
- Westwater’s October 2021 Phase I definitive feasibility study estimated capital costs of $202 million. Management planned construction-related activity to begin before year-end 2021 and expected production to begin in early 2023, initially using purchased feedstock. The study projected annual output of approximately 7,500 metric tonnes and a 15% pre-tax IRR; these are estimates, not reported results.
- A Phase II pre-feasibility study estimated capital costs of $464 million and annual output of approximately 32,400 metric tonnes. Management intends to begin a Phase II definitive feasibility study after Phase I is completed and commissioned.
- Management believes available cash will fund planned non-discretionary expenditures through 2022, but expects further financing, including equity facilities and potentially project financing, to support facility construction. It cautioned that financing may not be available on acceptable terms and that, without project financing to complete construction in 2023, development plans may need to change.
- Risks include construction cost increases or delays, supply-chain and labor constraints, inflation, permitting and regulatory issues, customer and feedstock availability, graphite-market conditions, COVID-19 impacts, and the unproven commercial-scale design of the purification process.
- Westwater is pursuing arbitration against Turkey over cancellation of uranium project licenses. The substantive hearing took place September 13–17, 2021; a formal ruling was not expected until the second half of 2022. The filing does not provide a clear value for any potential recovery. Management said it did not expect legal settlements generally to materially affect financial position, results, or cash flows.
- The company stated disclosure controls were effective as of September 30, 2021, and reported no material changes in internal control over financial reporting during the nine-month period.
Investor verification priorities
- Verify Phase I financing, construction spending, schedule, and whether the early-2023 production target remains achievable.
- Track cash burn, further share issuance and dilution, and remaining availability under the Cantor and Lincoln Park facilities.
- Assess whether pilot-produced materials meet product specifications and customer requirements, and whether supply, permitting, and construction assumptions in the feasibility work hold.
- Monitor the Turkey arbitration, including the ruling timeline and any disclosed estimate of potential recovery.