Westwater Resources, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 14, 2023. Westwater is developing a battery-grade graphite business centered on its planned Kellyton, Alabama processing plant and the Coosa Graphite Deposit. The company reported no operating revenue and said its last revenue from operations was in 2009.
Financial performance and position
- Losses: Q3 net loss was $3.5 million, or $0.07 per share, versus $3.5 million and $0.07 per share in Q3 2022. Nine-month net loss was $9.5 million, or $0.19 per share, versus $9.4 million and $0.21 per share.
- Expenses: Nine-month operating expenses rose to $10.7 million from $9.2 million. Product development expense increased to $2.7 million from $0.9 million, mainly for customer samples and work under the SK On joint development agreement. General and administrative expense was $7.6 million; exploration expense declined to $0.3 million from $0.6 million.
- Revenue and margins: No revenue, gross profit, or operating margin was reported for the period.
- Cash flow: Nine-month operating cash use was $12.2 million, compared with $8.6 million in 2022. Capital expenditures were $55.3 million, versus $32.0 million. Financing provided $4.0 million, down from $25.6 million, primarily reflecting lower equity sales.
- Liquidity: Cash and cash equivalents were $11.7 million at September 30, 2023, down from $75.2 million at December 31, 2022. Current assets were $12.2 million and current liabilities $8.9 million. The filing states planned nondiscretionary expenditures over the year after issuance exceed cash on hand, excluding financing opportunities and equity facilities.
- Assets and liabilities: Total assets were $147.5 million, including $130.0 million of net property, plant and equipment; construction in progress was $115.2 million. Total liabilities were $10.6 million, including lease liabilities. The filing does not disclose material conventional borrowings.
- Equity financing and dilution: The company issued 4.6 million shares for net proceeds of $4.1 million in the first nine months. Shares outstanding were 53.4 million at September 30, compared with 48.4 million at year-end. Approximately $17.3 million of ATM capacity and 8.8 million shares available under the Lincoln Park facility were reported.
Material changes and developments
- Q3 construction spending advanced the Kellyton plant: five of six primary buildings were complete, overhead cranes were installed, and equipment installation had begun. The company had incurred approximately $116.7 million in Phase I costs, including liabilities, since project inception.
- Construction activity was reduced from anticipated levels pending additional funding. Management said the reduced pace is expected to affect the project schedule; it did not provide a revised completion date.
- A debottlenecking study increased planned Phase I coated spherical purified graphite production by 33%, to 10,000 metric tons annually. The company reiterated estimated Phase I construction costs of approximately $271 million.
Outlook, risks and unusual items
- Funding and going concern: Management concluded that substantial doubt exists about the company’s ability to continue as a going concern within one year after the financial statements were issued. Westwater is pursuing equity, project debt, convertible debt, partnership or joint-venture financing. It cautioned that funding may not be available on acceptable terms or in sufficient amounts; without it, construction could be delayed, curtailed or put on hold.
- Customers: Westwater reported testing feedback under its SK On joint development agreement, but a supply agreement had not been executed. It had signed general terms and conditions with a North American automaker and was negotiating a potential offtake agreement that could cover up to all Phase I and Phase II capacity. Customer qualification and commercial contracts remain uncertain.
- Coosa project: The company expected to complete and disclose a preliminary economic assessment in Q4 2023, then undertake a strategic financing review. These were forward-looking expectations, not completed results in this filing.
- Turkey arbitration: A tribunal awarded Westwater approximately $1.3 million in damages and $3.7 million in arbitration costs, plus interest to be determined. The tribunal denied Westwater’s request to rectify the award and awarded Turkey approximately $54,000 in costs. Westwater had not recognized the award because collection was not considered probable.
- Other income: Nine-month other income was $1.2 million, versus a $0.2 million expense in 2022, reflecting higher interest income and lower foreign-exchange losses. The filing reported no inventory write-downs.
- Key risks include financing availability and cost, construction delays or overruns, customer qualification and contracting, graphite prices and supply, permitting, and broader market and geopolitical conditions. Management reported disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Progress, terms and timing of financing sufficient to complete Kellyton Phase I, against the approximately $271 million estimated cost.
- Whether reduced construction activity changes the project schedule, and any subsequent updated completion or commissioning estimate.
- Execution and qualification milestones for SK On and other prospective customers, including whether the potential automaker offtake becomes a binding agreement.
- Cash burn, remaining ATM and Lincoln Park capacity, and the effect of future equity issuance on existing shareholders.
- Collection prospects and eventual accounting treatment of the Turkey arbitration award.
- Results of the Coosa preliminary economic assessment and the company’s subsequent financing plans for the deposit.