Westwater Resources, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 6, 2023. Westwater is developing a U.S. battery-grade natural graphite business and had no operating revenue in the year. It has not recorded revenue from operations since 2009.
Business context and developments
- Westwater continued construction of Phase I of the Kellyton Graphite Plant in Alabama, including site work, foundations, utilities, manufacturing buildings and delivery of some long-lead equipment. The company reported all permits needed to complete Phase I construction had been obtained.
- Phase I was optimized to planned annual capacity of 7,500 metric tons of coated spherical purified graphite (ULTRA-CSPG) and 8,500 metric tons of SPG fines. The company plans to purchase third-party graphite feedstock until its Coosa deposit is developed.
- The Coosa deposit resource estimate comprises 26 million short tons of indicated resources at 2.89% graphitic carbon and 97 million short tons of inferred resources at 3.08%. These are mineral resources, not reserves, and do not demonstrate economic viability.
Financial performance and position
| Metric | FY 2022 / Dec. 31, 2022 | FY 2021 / Dec. 31, 2021 |
|---|---|---|
| Revenue | No operating revenue | No operating revenue |
| Net loss | $11.1 million; $0.25 per share | $16.1 million; $0.49 per share |
| Operating expenses | $12.1 million | $18.2 million |
| Cash used in operating activities | $13.2 million | $16.9 million |
| Cash used in investing activities | $52.8 million | $2.1 million |
| Cash provided by financing activities | $25.9 million | $84.0 million |
| Cash and cash equivalents | $75.2 million | $115.3 million |
| Total assets | $168.4 million | $133.0 million |
| Total liabilities | $26.4 million | $6.8 million |
| Stockholders’ equity | $142.0 million | $126.2 million |
Margins are not meaningful because the company had no operating revenue. The balance sheet reports no debt balance; current liabilities were $25.1 million, including $23.0 million of accounts payable. Net working capital was approximately $51.0 million. The auditor reported substantial doubt about the company’s ability to continue as a going concern: planned non-discretionary spending through March 2024 exceeds available cash, absent financing or use of equity facilities.
Material changes versus FY 2021
- Net loss narrowed by $5.0 million, mainly because product development and arbitration costs fell and interest income rose. General and administrative expenses increased by about $1.0 million.
- Product development expense fell to $1.1 million from $6.0 million, while arbitration expense declined to $0.1 million from $2.2 million. Other income rose to $1.0 million, primarily from interest income.
- Capital expenditures for Kellyton drove investing cash outflow to $52.8 million. Financing inflows fell to $25.9 million from $84.0 million as the company sold approximately 13.0 million shares through its at-the-market facility in 2022.
- Year-end shares issued increased to 48.4 million from 35.3 million. The company’s equity financing supported operations and plant development but diluted existing shareholders.
Outlook, risks and unusual items
- Phase I construction is estimated to cost approximately $271 million, up from the original $202 million estimate. The company reported $76.4 million incurred, inclusive of year-end liabilities, and estimated approximately $215.7 million of remaining capital expenditures. These figures and schedules are subject to change.
- Management expected testing and commissioning in late 2023 and first production in the first half of 2024, conditional on securing additional funding; Phase I optimization was targeted for the second half of 2024. Phase II is planned to raise annual capacity to 40,500 metric tons of ULTRA-CSPG and 46,000 metric tons of SPG fines.
- On March 6, 2023, the company signed a non-binding, non-exclusive indicative term sheet for $150 million of private debt financing, anticipated to close in Q2 2023 subject to due diligence and final terms. Closing, amount and sufficiency are not assured.
- Customer activity included five letters of intent, subject to customary conditions and future definitive agreements, and a collaboration agreement with a Tier 1 EV battery manufacturer to evaluate product suitability. These do not constitute confirmed sales commitments.
- On March 3, 2023, an arbitration tribunal found Turkey had unlawfully expropriated Westwater’s Turkish investment and awarded approximately $1.3 million in damages, about $3.7 million in arbitration costs and expenses, plus interest yet to be determined. The award was not recognized in the 2022 financial statements; recognition depends on collection being probable.
- Key risks include financing availability and dilution, construction cost and schedule overruns, inflation and supply-chain constraints, successful commissioning and commercial-scale production, customer qualification and sales, graphite price volatility, and permitting and development risks for the Coosa mine. The Taylor litigation remains unresolved; the plaintiff seeks CAD $3.0 million plus other relief, and Westwater has counterclaimed for CAD $7.0 million plus other relief.
Important facts for investors to verify
- Whether the proposed $150 million financing closed on final terms and provides sufficient funds to complete Phase I.
- Updated construction cost, remaining funding requirement, construction progress and commissioning/production schedule.
- Whether customer testing converts into definitive, enforceable supply agreements and what volumes and terms they contain.
- Collection prospects, timing and interest calculation for the Turkey arbitration award; no award proceeds were recognized at year-end.
- Any updated feasibility, permitting, surface-access and financing plans for Coosa; disclosed resources are not reserves and have no demonstrated economic viability.
- Progress against the going-concern funding risk and the effect of further equity issuance on cash runway and shareholder dilution.