Westwater Resources, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Amounts below are in U.S. dollars; financial-statement amounts are converted from thousands to millions unless noted. The company reported no revenue in either comparable period and said it last recorded operating revenue in 2009.
Business context
Westwater is an exploration and development company focused on uranium, lithium and graphite. It acquired Alabama Graphite in April 2018, adding the Coosa graphite project in Alabama. It also holds uranium assets, principally in Texas and New Mexico, and lithium mineral rights in Nevada and Utah.
Key financial metrics
| Metric | Q3 2018 / Sept. 30, 2018 | Comparable period / prior year-end |
|---|---|---|
| Revenue | None | None in Q3 2017 and first nine months of 2017 |
| Net loss | Q3: $3.1 million; nine months: $27.0 million | Q3 2017: $3.0 million; nine months 2017: $3.8 million |
| Loss per share | Q3: $0.06; nine months: $0.68 | Q3 2017: $0.12; nine months 2017: $0.16 |
| Operating cash used | Nine months: $9.0 million | Nine months 2017: $8.9 million |
| Cash and cash equivalents | $1.4 million | $4.1 million at Dec. 31, 2017 |
| Restricted cash | $3.7 million | $3.7 million at Dec. 31, 2017 |
| Working capital | $0.9 million | $3.9 million at Dec. 31, 2017 |
| Total assets / equity | $35.3 million / $26.7 million | $50.2 million / $41.1 million at Dec. 31, 2017 |
| Liabilities | $8.6 million, including $5.6 million of asset retirement obligations | $9.1 million at Dec. 31, 2017 |
Margins are not meaningful because the company had no revenue. The filing reports no interest-bearing debt balance at September 30, 2018; it does report asset retirement obligations and other liabilities. Q3 operating expenses were $2.9 million, versus $3.2 million a year earlier.
Material changes versus prior periods
- The nine-month net loss increased by $23.2 million, primarily reflecting a $18.0 million impairment of Turkish uranium properties, alongside higher general and administrative and acquisition costs. The 2017 comparison included a $4.9 million gain on disposal of uranium properties.
- Q3 net loss rose modestly from $3.0 million to $3.1 million. A $0.4 million loss on sales of Laramide securities and higher general and administrative costs were partly offset by lower mineral-property expenses.
- Alabama Graphite was acquired for approximately $8.9 million in cash, Westwater shares, and replacement options and warrants. The transaction included issuance of 11.6 million common shares.
- Common shares outstanding increased substantially during the period through equity financings and the Alabama Graphite acquisition. The filing reports 57.5 million shares issued at September 30 and 66.3 million outstanding as of November 7, 2018.
- Cash used in operations remained near the prior-year level, while financing provided $5.9 million in the first nine months, versus $10.9 million in 2017.
Outlook, risks and unusual items
- Management said available resources and anticipated financing are expected to cover non-discretionary expenditures through January 2020. This depends on financing, asset monetizations and spending reductions; the company cautioned that financing may not be available on acceptable terms and that it could need to materially change its plans.
- At October 31, 2018, cash was $1.7 million. The company cited a $3.5 million Laramide promissory note, with $1.5 million principal due January 2019 and $2.0 million due January 2020, and approximately $4.5 million of registered capacity remaining under its Cantor at-the-market offering. Laramide may satisfy up to half of each principal payment in its shares.
- Management’s graphite plan calls for pilot-plant work in 2019, proposed processing-facility construction in 2020, and planned Coosa mine start-up in 2026. These are plans, not assured outcomes; the company was pursuing project financing and working with potential customers, some of whom had received qualification samples.
- Turkey revoked the Temrezli and Sefaatli mining and exploration licenses. Westwater fully impaired the related uranium assets, while investigating remedies and potential compensation. The amount and timing of compensation are uncertain and no compensation was recognized.
- The company is undertaking reclamation at Texas properties and had $5.6 million of total asset retirement obligations, including $0.6 million current. Restricted cash of $3.7 million is pledged for performance bonds and is not available for general corporate needs.
- A former Alabama Graphite executive’s consulting entity sued for $108,349.45, alleging entitlement to severance. Westwater denied the allegations and sought dismissal. The filing says it did not expect disclosed legal settlements to have a material effect.
- Other principal risks include the need for additional capital, commodity-price and exploration uncertainty, permitting and regulatory exposure, and execution and integration of the graphite business.
Important facts for investors to verify
- Whether financing, cash conservation and asset monetizations can support operations through the stated January 2020 horizon, and the timing and terms of any new equity or project financing.
- Collection of the Laramide note, especially the January 2019 installment and the possibility of payment in shares rather than cash.
- Any developments in the Turkish license dispute, including whether compensation becomes fixed, collectible and recognized.
- Progress, costs and funding for Coosa graphite customer qualification, pilot-plant work and the proposed facility schedule.
- Future reclamation spending and changes in asset retirement obligations, alongside further share issuance and dilution.
- Resolution and financial impact, if any, of the Bolton lawsuit.