Westwater Resources, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Unaudited financial statements; amounts below are in U.S. dollars unless noted.
Business context
Westwater is a pre-revenue energy-minerals exploration and materials-development company, with graphite and lithium projects and uranium properties. It reported no operating revenue in either the first nine months of 2019 or 2018; the filing says its last operating revenue was in 2009.
Financial results and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Net loss | $1.834 million | $3.137 million | $7.783 million | $27.012 million |
| Loss per share | $0.95 | $3.07 | $4.72 | $33.98 |
| Operating expenses | $2.576 million | $2.918 million | $8.128 million | $27.164 million |
Margins are not meaningful because the company had no revenue. For the nine months, cash used in operations was $7.192 million, investing activities provided $3.756 million, and financing activities provided $2.627 million. Cash, cash equivalents and restricted cash totaled $4.500 million at September 30, including $3.784 million restricted for performance bonds.
At September 30, current assets were $1.350 million and current liabilities were $3.952 million, a $2.6 million working-capital deficit. Total assets were $26.128 million, total liabilities $10.148 million and stockholders’ equity $15.980 million. Liabilities included asset-retirement obligations and operating leases; the filing does not report conventional borrowings. Cash at October 31 was $2.3 million.
Changes versus prior period and unusual items
- Q3 net loss improved by $1.3 million year over year, primarily reflecting a $0.729 million gain on the uranium-asset sale and reversal of $0.4 million in accrued executive bonuses.
- Nine-month net loss improved by $19.2 million, mainly because the 2018 period included a $17.968 million impairment of Turkish uranium properties; 2019 included the $0.729 million disposal gain.
- In August 2019, Westwater completed the sale of four uranium royalties and the remaining Laramide note for $2.75 million in total consideration; net cash proceeds were $2.470 million. The disposal gain was $0.729 million.
- Equity issuance provided $2.628 million net during the first nine months. The company completed a 1-for-50 reverse stock split in April 2019; reported share and per-share figures reflect the split.
- Adoption of lease accounting in January 2019 resulted in recognition of right-of-use assets and lease liabilities. At September 30, each was approximately $0.5 million.
Outlook, risks and contingencies
- Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It expects continued losses and relies on equity or debt financing and asset sales; additional financing is not assured.
- Potential funding sources included remaining capacity of approximately $5.2 million under the Lincoln Park agreement, subject to share registration, and $23.8 million under the Cantor at-the-market agreement, subject to registration. Westwater also cited possible additional financings and asset sales.
- Management plans to seek project financing for graphite product development and pilot/commercial facilities, and financing or joint-venture partners for discretionary lithium exploration. The filing provides no quantified operating or financial guidance.
- Westwater is pursuing ICSID arbitration against Turkey after the government revoked licenses for the Temrezli and Sefaatli uranium projects. The related properties were fully impaired in 2018; any compensation will be recognized only when fixed, determinable and probable of collection. A merits hearing was scheduled for 2021, subject to procedural developments.
- Other key risks include access to capital, commodity prices and demand, exploration and project economics, permitting and regulation, operating conditions, weather, and litigation or arbitration outcomes. Reclamation obligations totaled $6.222 million, including $0.895 million current.
- Management reported disclosure controls and procedures were effective as of September 30, 2019, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash availability and near-term funding needs, distinguishing unrestricted cash from restricted reclamation collateral.
- Remaining registered share capacity under Lincoln Park and Cantor facilities, and the potential dilution from future equity sales and outstanding warrants.
- Progress and costs for Texas reclamation, associated bond releases, and the adequacy of recorded asset-retirement obligations.
- Status, costs, timing and potential recovery from the Turkey arbitration; no recovery is recognized in the reported financial statements.
- Whether graphite and lithium project financing, development plans and eventual project economics can be achieved without operating revenue.