Westwater Resources, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; this filing reports annual results, not standalone fourth-quarter results. The company filed on March 1, 2018. Westwater is an exploration and development company focused on lithium and uranium; none of its properties was producing at year-end, and it reported no revenue in 2017 or 2016.
Financial performance and position
| Metric | FY 2017 / Dec. 31, 2017 | Prior comparable period |
|---|---|---|
| Revenue | $0 | $0 in 2016 |
| Net loss | $19.3 million; $0.78 per share | $19.6 million; $3.73 per share in 2016 |
| Cash used in operating activities | $11.6 million | $12.3 million in 2016 |
| Cash and cash equivalents | $4.1 million | $3.3 million |
| Working capital | $3.9 million | $4.2 million deficit |
| Total assets / liabilities | $50.2 million / $9.1 million | $56.9 million / $13.9 million |
| Net property, plant and equipment | $35.4 million | $46.9 million |
Because the company had no revenue or production, operating margins are not meaningful. The $19.3 million net loss included $11.4 million of uranium-property impairment charges, up from $1.7 million in 2016. A $4.9 million gain on the sale of Hydro Resources’ Churchrock and Crownpoint assets partly offset expenses; the company also recorded $1.0 million of acquisition costs related to Alabama Graphite.
Financing activities provided $11.0 million, including $16.5 million of net stock proceeds, partly offset by repayment of the $5.5 million RCF loan. Investing activities provided $1.0 million. The RCF debt was fully repaid; no convertible loan remained at year-end. The company had $3.7 million of restricted cash pledged against $9.1 million of surety bonds, which is unavailable for general corporate use. Asset-retirement obligations were $5.7 million, including $1.1 million current; other long-term liabilities included $0.5 million in royalties payable.
Material changes and business developments
- The company expanded its lithium exploration portfolio in Nevada and Utah, reporting approximately 36,730 acres across three brine basins. Columbus Basin drilling encountered high-total-dissolved-solids fluids and lithium values up to 43 ppm; Sal Rica sampling indicated values up to 100 ppm. These are exploration-stage results, not established economic resources or reserves.
- Uranium assets include the Temrezli development project and exploration licenses in Turkey, idled Texas facilities and projects, and New Mexico mineral holdings. Uranium production has been suspended since 2009.
- Westwater agreed to acquire Alabama Graphite in an all-stock transaction. Closing remained subject to shareholder and court approvals. Former Alabama Graphite shareholders were expected to own about 29.4% of the combined company on the stated outstanding-share basis. Westwater had advanced $0.8 million under a secured loan by year-end.
- The sale of Hydro Resources generated cash, Laramide shares and warrants, and a secured $5.0 million note. Laramide made the first scheduled principal payment in January 2018, partly in cash and partly in shares.
- Common shares outstanding increased from 16.7 million at year-end 2016 to 27.8 million at year-end 2017, reflecting financing and other share issuances.
Outlook, risks and unusual items
Management stated that year-end working capital, together with expected funding from its Cantor at-the-market program and Aspire Capital purchase agreement, was expected to fund operations through March 31, 2019. This outlook depends on access to equity financing and is not assured: the Aspire facility’s dollar availability is constrained by a share limit unless specified conditions are met. Management also said it would seek additional capital, monetize non-core assets and reduce spending. The filing cites average cash expenditures of approximately $1.0 million per month in 2017, expected to continue in 2018.
Management’s strategy is to advance lithium exploration and preserve uranium-project optionality while conserving cash. Temrezli construction is dependent on improved uranium-market economics, permits, land access and project financing; the company had no committed financing for the project. The Texas plants are idle and would require capital spending to return to productive capacity.
- Funding and dilution: The company has no producing assets or operating cash source and warns that unavailable financing could require material operating or strategy changes. Further equity sales could dilute shareholders.
- Commodity and development risk: Uranium prices remained weak; lithium properties had no known mineral reserves. Exploration, recoverability, economics and future production are uncertain.
- Permitting and jurisdiction: Mining development depends on regulatory approvals and water rights. Turkey operations add political, legal, currency and land-access risks; the filing also noted U.S.–Turkey visa-service suspensions during 2017.
- Environmental obligations: Texas restoration and reclamation liabilities were estimated at approximately $7.5 million, with $5.7 million recorded. Costs and surety requirements may change.
- Legal contingency: A dispute with Kleberg County over groundwater restoration and the settlement agreement was pending before the Texas Supreme Court; the company reported no indication of the timing or outcome.
- Asset impairment: Most 2017 impairment related to Cebolleta/Juan Tafoya after declining uranium prices; the combined project carrying value was reduced to $7.8 million.
- Audit and controls: The auditor gave an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal-control effectiveness.
Most important facts for investors to verify
- Whether the stated liquidity runway through March 2019 was achieved, and how much equity financing was actually accessible after share-cap restrictions and dilution.
- The status and final terms of the Alabama Graphite acquisition, including approvals, integration costs, loan treatment and resulting ownership dilution.
- Whether lithium exploration progresses beyond preliminary sampling and drilling to independently supported resources and commercially viable economics.
- Current permitting, land-access, financing and cost assumptions for Temrezli, and whether uranium-market conditions support development.
- The outcome and financial effects of the Kleberg County litigation, and the adequacy of recorded reclamation liabilities and surety collateral.
- The collectability and value of Laramide consideration, including future note payments and shares, and the company’s continued ability to fund its cash burn.