Westwater Resources, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; comparative figures are for 2017. This is an annual filing, not a standalone fourth-quarter report.
Business context
Westwater is a pre-revenue energy-materials developer with battery-graphite development assets in Alabama, lithium exploration claims in Nevada and Utah, and uranium properties and idled processing facilities in Texas and New Mexico. The April 2018 acquisition of Alabama Graphite marked a strategic shift toward battery-graphite products. The company reported no mineral production in 2018 and had not recorded operating revenue since 2009.
Financial results and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Net loss | $35.7 million | $19.3 million |
| Basic and diluted loss per share | $0.77 | $0.78 |
| Cash used in operating activities | $11.6 million | $11.6 million |
| Cash provided by financing activities | $8.7 million | $11.0 million |
- Margins: Not meaningful; the company had no revenue.
- Liquidity: At year-end, cash and cash equivalents were $1.6 million, working capital was approximately $1.0 million, and current assets totaled $4.2 million versus current liabilities of $3.2 million. An additional $3.7 million of restricted cash was pledged for performance bonds and was not available for general obligations.
- Balance sheet: Total assets were $30.0 million, total liabilities $9.2 million, and stockholders’ equity $20.8 million. No conventional borrowings were reported on the balance sheet; liabilities included $6.2 million of asset-retirement obligations and $0.5 million of other long-term liabilities.
- Cash burn: Management reported average cash expenditures of approximately $1.0 million per month in 2018 and expected a similar rate in 2019.
Changes versus 2017
- Net loss increased by $16.4 million, primarily reflecting uranium-property impairment charges of $23.7 million in 2018 versus $11.4 million in 2017. The 2018 charge included $18.0 million for Turkish uranium assets and approximately $5.7 million for certain Texas plant and equipment.
- The 2017 results included a $4.9 million gain on disposal of uranium properties; there was no comparable gain in 2018.
- Mineral-property expenses declined to $3.5 million from $4.6 million, while general and administrative expenses increased to $7.4 million from $6.6 million.
- Operating cash use was broadly unchanged. Financing proceeds fell to $8.7 million from $11.0 million; 2018 funding relied on equity offerings and at-the-market share sales.
- Shares outstanding rose materially, from 27.8 million at December 31, 2017 to 71.8 million at December 31, 2018, reflecting financing and the Alabama Graphite acquisition.
Outlook, risks and unusual items
- Management planned a graphite pilot plant in 2019 and a commercial-scale processing facility in 2020, subject to financing. The proposed Coosa graphite mine was targeted for start-up in 2026. These were plans, not committed or financed projects.
- Westwater intended to continue lithium exploration, with significant work dependent on project financing or joint-venture funding. Texas uranium assets were to remain on standby while restoration and reclamation continued; production resumption depended on improved economics and uranium prices.
- The independent auditor highlighted substantial doubt about the company’s ability to continue as a going concern. Management said it would rely on financing, asset sales and other funding sources; it gave no assurance that sufficient financing would be available.
- Nasdaq had notified Westwater of noncompliance with the $1.00 minimum bid-price rule. The filing stated the company needed to regain compliance by March 11, 2019 and planned to seek shareholder approval for a reverse stock split. Delisting could impair liquidity and access to capital.
- Turkey revoked the licenses for the Temrezli and Sefaatli uranium projects in June 2018. Westwater recorded a full impairment of the Turkish mineral assets and filed for ICSID arbitration; the timing and amount of any recovery were uncertain and no recovery had been recognized.
- Texas reclamation liabilities were estimated at approximately $7.9 million, with $6.2 million recorded. Surety bonds totaled $9.4 million and were partially collateralized by restricted cash.
- Other risks include dilution from further equity issuance, permitting and construction delays or cost overruns, commodity-price volatility, unproven graphite processing and customer qualification, and the absence of known lithium reserves.
Important facts for investors to verify
- Whether the company secured adequate funding after year-end to meet operating needs and advance graphite plans.
- Subsequent cash collections and repayment status of the Laramide note, including the remaining $2.0 million due in January 2020 as disclosed.
- Whether Westwater regained Nasdaq bid-price compliance and the outcome of its proposed reverse stock split.
- Progress, financing, permitting and customer qualification for the graphite pilot and commercial facilities.
- Developments in the Turkey arbitration and whether any compensation becomes fixed, collectible and recognizable.
- Actual reclamation costs, bond releases and any changes to asset-retirement obligations or restricted-cash requirements.