WESTWATER RESOURCES, INC. quarterly report, Q3 FY2015

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Westwater Resources, Inc. (then Uranium Resources, Inc.) — Form 10-Q summary

Reporting period: Quarter and nine months ended September 30, 2015. The filing identifies the registrant as Uranium Resources, Inc.; it does not use the Westwater Resources name. Financial amounts below are in U.S. dollars unless noted.

Business context

The company had ceased uranium production in 2009 and reported no current production or expectation of significant uranium sales revenue or related cash inflows for 2015. Following its November 9, 2015 merger with Anatolia Energy Limited, its stated focus was advancing the Temrezli in-situ recovery project in Turkey toward production. The merger closed after the quarter and is therefore a subsequent event.

Financial results and position

  • Revenue: No revenue is reported in the presented statements of operations; the company said it did not expect significant sales revenue in 2015.
  • Net income (loss): Third-quarter 2015 net income was $0.305 million, or $0.01 per share, versus a $3.993 million loss, or $0.16 per share, in Q3 2014. For the first nine months, the net loss was $8.008 million, or $0.28 per share, compared with a $10.583 million loss, or $0.44 per share, in 2014.
  • Key expense and margin context: Nine-month operating expenses were $10.962 million, up from $10.485 million. A conventional operating margin is not meaningful given the absence of reported revenue.
  • Unusual gain: Q3 and nine-month results included a $4.916 million gain from disposing of the Roca Honda assets. This non-recurring gain was the main reason results improved year over year; the project had previously been fully written down.
  • Cash flow: Nine-month operating cash use was $8.481 million, versus $9.648 million in 2014. Investing activities provided net cash of $1.223 million, primarily reflecting $2.518 million in proceeds from property disposals, partly offset by the $1.283 million Anatolia loan and equipment purchases. Financing provided $5.524 million, mainly from a March equity offering and ATM sales.
  • Liquidity: September 30 cash was $3.836 million, down from $5.570 million at year-end 2014. Working capital was $2.294 million, down from $3.762 million. Restricted cash was $3.941 million.
  • Debt and obligations: The RCF convertible loan had $8.0 million principal outstanding, a $5.699 million carrying value after unamortized discount, 10% annual interest, and a December 31, 2016 maturity. Interest could be paid in shares or cash at the lender’s election. Asset retirement obligations totaled $4.404 million, including $0.118 million current.
  • Equity: Stockholders’ equity was $29.921 million, versus $31.137 million at December 31, 2014. The balance sheet showed 30.014 million common shares outstanding at September 30; the filing reported 50.756 million outstanding as of November 10, after the merger issuance.

Material changes versus prior comparable periods

  • Q3 moved from a loss to a small profit, principally because of the Roca Honda disposal gain; higher general and administrative costs partly offset the benefit.
  • The nine-month net loss narrowed by $2.575 million. The disposal gain was partly offset by the absence of the prior-year $1.605 million derivative gain and higher mineral-property, general and administrative, and interest expenses.
  • General and administrative expense rose to $2.851 million in Q3 from $2.202 million and to $7.352 million for nine months from $7.002 million. Merger-related legal, accounting, and consulting costs were significant contributors.
  • Cash declined by $1.734 million from year-end. The company raised less financing cash in the first nine months of 2015 than in 2014, when it received additional RCF advances and larger equity proceeds.

Outlook, transactions, and risks

  • Management expected existing cash to fund operations through the end of 2015, including remaining merger costs, but said additional funding would be needed in Q4 following the merger. It planned to reduce monthly cash spending, seek financing, and monetize non-core assets.
  • Management cautioned that financing might not be available in sufficient amounts or on acceptable terms, including when debt matures; a funding shortfall could require changes to business plans. The company had about $6 million remaining under its ATM program as of November 9, 2015.
  • The Anatolia merger closed November 9, 2015. The company issued 20,516,696 shares; former Anatolia securityholders received approximately 41% of the merged company. Purchase accounting and pro forma results were not yet available in this filing.
  • A November 9 letter of intent proposed selling the Churchrock and Crownpoint properties to Laramide Resources for $5.25 million cash plus a $7.25 million note payable in three equal annual installments, with Laramide assuming related reclamation and remediation liabilities. Definitive agreements and closing remained subject to conditions; closing was expected in the first half of 2016.
  • The Roca Honda sale consideration included $2.5 million cash, Energy Fuels shares valued at approximately $0.293 million, and Churchrock-area properties valued at $2.123 million. The company also retained a 4% royalty on part of Roca Honda, which Energy Fuels could repurchase for $5 million before royalty payments became due.
  • Risks include continued lack of production revenue, uranium prices and market demand, capital availability, permitting and regulation, environmental and reclamation obligations, operating and geological uncertainty, and litigation. Management reported disclosure controls effective as of September 30, 2015 and no material change in internal controls during the quarter.

Important facts for investors to verify

  • Whether the company secured the additional funding management said would be needed after the merger, and its cash runway and cash-burn rate.
  • The final acquisition accounting for Anatolia, including assets and liabilities acquired, merger-related costs, and the combined company’s financial results.
  • Whether the Laramide letter of intent became a definitive agreement and whether the sale closed on the proposed terms and timetable.
  • The RCF loan’s repayment, conversion, and interest-payment terms, and the company’s ability to meet the December 2016 maturity.
  • Progress, capital requirements, permits, and development schedule for Temrezli, as well as reclamation obligations and costs across the company’s properties.