Business context and reporting period
Westwater Resources, Inc. (formerly Uranium Resources, Inc.) filed this unaudited Form 10-Q for the quarter ended September 30, 2017. The company is an exploration and development business focused on lithium projects in Nevada and Utah and uranium properties in the United States and Turkey. It reported no revenue in the three- or nine-month periods ended September 30, 2017 or 2016.
Financial performance and position
| Metric | Three months ended September 30, 2017 | Nine months ended September 30, 2017 | Comparable 2016 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net loss | $3.0 million | $3.8 million | $3.7 million and $12.6 million, respectively |
| Basic and diluted loss per share | $0.12 | $0.16 | $0.38 and $1.81, respectively |
| Operating expenses | $3.2 million | $9.1 million | $3.1 million and $10.0 million, respectively |
- For the nine months, operating cash use was $8.9 million; investing activities provided $1.9 million and financing activities provided $10.9 million. Cash and cash equivalents increased $3.9 million to $7.2 million.
- At September 30, 2017, working capital was $8.2 million, compared with a $4.2 million deficit at December 31, 2016. Current assets were $10.6 million and current liabilities $2.4 million. Restricted cash was a further $3.7 million.
- Total assets were $63.7 million, total liabilities $8.0 million, and stockholders’ equity $55.7 million. The company repaid its $5.5 million RCF convertible loan in February 2017; no loan balance remained at quarter-end. Asset retirement obligations totaled $5.1 million.
- No operating margin is meaningful because the company had no revenue. Mineral property expenses were $3.6 million for the nine months, up from $2.9 million.
Material changes versus prior periods
- Third-quarter net loss narrowed by $0.8 million year over year, primarily because interest expense fell by about $0.7 million after repayment of the RCF loan.
- Nine-month net loss improved by $8.8 million year over year. Key contributors included a $4.9 million gain on the sale of Hydro Resources Inc. (HRI), lower interest expense, lower general and administrative expense, and no comparable uranium-property impairment charge; higher mineral property spending partly offset these improvements.
- HRI’s January 2017 sale generated $2.0 million net cash proceeds and other consideration, including a $5.0 million secured note receivable. The reported gain was $4.9 million. The note has scheduled principal payments beginning in January 2018, and the company retained a 4% Churchrock royalty, valued at zero in the sale accounting.
- Equity offerings and share issuance expanded the share base: 27.5 million shares were outstanding at September 30, 2017, versus 16.7 million at December 31, 2016. The company also issued 880,000 shares as an Aspire Capital commitment fee.
Outlook, commentary, and risks
- Management expected existing working capital and anticipated proceeds under its financing arrangements to fund operations through September 30, 2018. This outlook depends in part on access to equity financing: the $30 million ATM facility and $22 million Aspire Capital agreement remained available, subject to their terms and share limits. The company cautioned that financing may not be available on acceptable terms and that its plans could require material changes if funds are unavailable.
- The company was evaluating lithium exploration opportunities. Columbus Basin Phase 1 drilling was completed after quarter-end; the October 31 update reported three holes totaling 3,870 feet and lithium concentrations up to 43 ppm, with Phase 2 planning underway. At Sal Rica, sampling and geophysical work identified a reported shallow lithium anomaly over more than 20 square miles, with values up to 100 ppm; permitting and program planning were ongoing. These are exploration results, not established resources or production.
- Key risks include ongoing cash requirements, commodity-price volatility, exploration and permitting uncertainty, mining regulation, and foreign-operation risks. The filing specifically noted U.S.-Turkey visa-service suspensions in October 2017 and possible effects on Turkish operations.
- The Texas Supreme Court heard oral argument in the Kleberg settlement dispute on October 12, 2017; the company had no indication when or how it would rule. A separate TCEQ proceeding concerning the Kingsville facility was resolved after required payments totaling $16,683.
- Management reported effective disclosure controls as of September 30, 2017 and no material changes to internal control over financial reporting during the quarter. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether cash burn and financing availability support management’s stated runway through September 2018, including the Aspire share cap and restrictions on using the ATM concurrently.
- Collection and timing of the Laramide note payments, and the value and liquidity of the Laramide shares and warrants held as consideration for HRI.
- Whether lithium exploration and permitting produce commercially viable resources; reported early-stage assay results do not establish economic reserves.
- Developments in the Kleberg litigation and any operational or permitting consequences of foreign-policy or regulatory changes affecting Turkey.
- Future reclamation costs and the adequacy of the $5.1 million asset retirement obligation estimate.