Westwater Resources, Inc. — Q2 2020 Form 10-Q
Business context and reporting period
The filing covers the three and six months ended June 30, 2020. Westwater is a pre-revenue developer of uranium, lithium and battery-grade graphite projects, with mineral properties in the United States. Uranium production has been idled since 2009; the company reported no revenue for the first half of 2020 or 2019.
Financial performance and position
| Metric | Q2 2020 / June 30, 2020 | Comparable period / prior year-end |
|---|---|---|
| Revenue | None | None in Q2 2019 or first half 2019 |
| Net loss | Q2: $2.467 million; first half: $5.754 million | Q2 2019: $2.775 million; first half 2019: $5.949 million |
| Loss per share | Q2: $0.43; first half: $1.18 | Q2 2019: $1.81; first half 2019: $3.95 |
| Operating expenses | Q2: $2.487 million; first half: $5.782 million | Q2 2019: $2.933 million; first half 2019: $5.552 million |
| Operating cash used | First half: $6.065 million | First half 2019: $4.324 million |
| Cash and cash equivalents | $2.330 million | $1.870 million at December 31, 2019 |
| Restricted cash | $3.807 million | $3.797 million at December 31, 2019 |
| Total liabilities | $9.985 million | $9.915 million at December 31, 2019 |
| Notes payable | $331,000, related to PPP loan | None reported at December 31, 2019 |
Margins are not meaningful because the company had no revenue. At June 30, total assets were $27.614 million and stockholders’ equity was $17.629 million. Restricted cash is pledged for performance bonds and is not available for general corporate obligations. The balance sheet shows current assets of $2.969 million and current liabilities of $3.698 million, a deficit of approximately $729,000; management separately reports a $1.0 million working-capital deficit.
Material changes versus prior comparable periods
- Q2 net loss narrowed by about $308,000 year over year, mainly with lower mineral-property spending and arbitration costs. First-half net loss improved by about $195,000; 2019 included a $720,000 loss on sale of marketable securities, partly offset by note interest income.
- First-half operating cash use increased by $1.741 million, primarily due to higher prepaid assets and lower payables and accrued liabilities.
- Financing provided $6.622 million in the first half, versus $1.153 million in 2019, largely from common-stock sales and a $331,000 PPP loan. The company issued approximately 3.325 million shares during the first half; outstanding shares rose from 3.339 million at year-end 2019 to 6.665 million at June 30, 2020.
- Mineral-property expenses fell to $1.178 million from $1.426 million in the first half. General and administrative costs were broadly stable at $3.438 million versus $3.405 million.
Outlook, commentary, risks and contingencies
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern. It has not recorded operating revenue since 2009, expects continued losses and relies on equity and debt financings and asset sales. Failure to raise adequate funds could require delaying or curtailing operations.
- Funding plans: Management cited $2.9 million cash at July 31, 2020, $9.7 million of remaining capacity under the Lincoln Park purchase agreement and $19.5 million of remaining ATM capacity with Cantor, subject to registration and other conditions. Financing availability is not assured, and share-price volatility could constrain equity issuance.
- Graphite: Pilot-plant operations were scheduled for Q4 2020. The company reported encouraging independent laboratory testing of its ULTRA-PMG material; July 2020 testing of ULTRA-CSPG was reported to perform as well as or better than benchmark materials. Commercial-scale execution and financing remain uncertain.
- COVID-19: South Texas restoration and reclamation work was paused and employees furloughed in March, then restarted May 4 using PPP proceeds. Further disruption, restrictions, supply-chain issues and financing impacts remain risks.
- PPP loan: The $331,000 loan carries 1% interest and may be forgiven if program conditions are met. The company said it believed its use would qualify, but gave no assurance of forgiveness; any unforgiven balance is repayable.
- Turkey arbitration: Westwater seeks at least $36.5 million plus costs and interest over cancellation of uranium-project licenses. The tribunal denied Turkey’s request to bifurcate; Turkey’s response was due September 14, 2020, with the hearing scheduled for September 13–17, 2021. The claimed amount is uncertain and should not be treated as a realized recovery.
- Asset-retirement obligations totaled $6.271 million, including $949,000 current. Management reported no interim impairment of long-lived assets and no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Reconcile the reported $1.0 million working-capital deficit with the roughly $729,000 deficit implied by the June 30 balance-sheet current-asset and current-liability totals.
- Track cash burn, restricted-cash availability, financing capacity, required share registrations and dilution from future equity sales.
- Confirm PPP forgiveness status and the effect of any repayment obligation.
- Assess progress, costs and financing for the graphite pilot plant and any commercial-scale plans.
- Monitor arbitration milestones and outcomes; the $36.5 million-plus claim is not assured proceeds.