Westwater Resources, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The company develops uranium, graphite and lithium projects and reported no revenue; it has not recorded operating revenue since 2009. Financial statement amounts below are in U.S. dollars.
Financial results and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $3.295 million | $2.619 million |
| Net loss | $3.287 million | $3.174 million |
| Loss per share | $0.82 | $2.15 |
| Cash used in operating activities | $3.455 million | $2.740 million |
| Cash provided by financing activities | $2.471 million | $0.414 million |
- Operating margins are not meaningful because the company had no revenue.
- At March 31, cash and cash equivalents were $0.877 million; restricted cash was $3.806 million, pledged for performance bonds and unavailable for general corporate use. Current assets of $1.720 million and current liabilities of $3.956 million resulted in a $2.2 million working-capital deficit.
- Total assets were $26.304 million and total liabilities were $10.056 million. The balance sheet reported $0.463 million of operating lease liabilities and $6.380 million of asset retirement obligations. No conventional funded debt was listed at quarter-end. A subsidiary received a $0.3 million PPP loan on May 4, 2020.
- Stockholders’ equity was $16.248 million. The company issued stock and warrants for net proceeds of $2.471 million during Q1; shares outstanding increased from 3.339 million at year-end 2019 to 4.763 million at March 31, 2020.
Material changes versus the prior period
- Net loss increased by $0.113 million, while operating expenses rose by $0.676 million. Arbitration costs increased to $0.669 million from $0.131 million, primarily due to activity in the Turkey arbitration. Mineral property expenses rose to $0.728 million from $0.634 million; general and administrative expenses were $1.779 million versus $1.705 million.
- Operating cash use increased by $0.715 million. Q1 2019 included $1.786 million of investing inflows, including note and securities proceeds; Q1 2020 had no investing cash inflows.
- Loss per share improved despite the slightly larger net loss, alongside a higher weighted-average share count: 4.005 million versus 1.478 million.
Outlook, commentary and risks
- Management concluded that substantial doubt exists about the company’s ability to continue as a going concern, citing recurring losses, a working-capital deficit and reliance on future financing and asset sales. Cash was $0.5 million as of May 8, 2020. Management warned that inadequate financing could require delaying, reducing or curtailing operations.
- Potential funding sources included a new Lincoln Park stock purchase agreement allowing up to $12 million over 24 months, up to $2.8 million of registered capacity remaining under the ATM program as of May 8, and other financings or asset sales. These sources are not assured and could dilute shareholders.
- COVID-19 market disruption contributed to a 63% share-price decline between February 14 and March 16, 2020, constrained equity-raising capacity and led the company to shut down South Texas restoration and reclamation operations and furlough employees in March. Operations restarted May 4 after receipt of the PPP loan. Loan forgiveness is not assured.
- Management said graphite product development continued and pilot plant operations were then scheduled for Q4 2020. The company intends to pursue project financing for graphite development and possible partners or financing for lithium exploration; no formal financial guidance was provided.
- In its ICSID arbitration against Turkey over uranium project licenses, Westwater claimed compensation of at least $36.5 million plus costs and interest. The tribunal denied Turkey’s request to bifurcate the case; a substantive hearing was scheduled for September 2021. The outcome and any recovery are uncertain.
- The company reported that it believed long-lived assets remained recoverable and recorded no interim impairment for Q1. Other key risks include commodity prices, access to capital, COVID-19 effects, permitting, exploration results and project economics.
Important facts for investors to verify
- Unrestricted cash, working-capital needs and actual cash burn after May 8, including whether financing facilities remain available on usable terms.
- Share issuance, remaining authorized or registered capacity, and dilution under the Lincoln Park and ATM arrangements.
- Use of PPP proceeds and whether the loan qualifies for full or partial forgiveness.
- Graphite pilot-plant timing, financing, development costs and evidence of product qualification or commercial demand.
- Progress, costs and eventual outcome of the Turkey arbitration; the claimed damages are not a guaranteed recovery.
- Reclamation obligations, related restricted-cash collateral and the schedule and cost of South Texas work.