Westwater Resources, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Westwater is developing battery-grade natural graphite materials and has not recorded operating revenue since 2009.
Financial results and liquidity
- Revenue and margins: No operating revenue was reported; the filing states the company last recorded operating revenue in 2009. Revenue-based margins are therefore not meaningful.
- Net loss: Q2 net loss was $3.2 million ($0.07 per share), versus $3.5 million ($0.11 per share) in Q2 2021. First-half net loss was $6.0 million ($0.14 per share), versus $8.9 million ($0.29 per share) in the first half of 2021.
- Operating expenses: Q2 expenses totaled $3.2 million, down from $4.7 million a year earlier. First-half expenses totaled $6.1 million, down from $10.3 million. Lower product-development and arbitration costs contributed to the improvement; general and administrative costs increased.
- Cash flow: First-half operating cash use was $5.9 million, compared with $9.1 million in 2021. Investing cash use was $24.9 million, primarily for Kellyton plant construction, versus $0.2 million of investing cash provided in 2021. Financing provided $24.5 million, down from $77.7 million, primarily from common-stock sales.
- Cash and liquidity: Cash was $109.0 million at June 30, 2022, compared with $115.3 million at December 31, 2021. Management said available cash was sufficient for planned non-discretionary expenditures through Q3 2023.
- Debt and liabilities: The balance sheet reports no borrowings. Total liabilities were $8.5 million, including $7.1 million current liabilities; total assets were $153.6 million. The filing does not identify a conventional debt balance.
- Equity financing: The company sold 11.8 million shares through its ATM offering in the first half for net proceeds of $24.5 million. It reported $22.4 million remaining under the ATM offering and 9.7 million shares available for sale under its Lincoln Park agreement.
Material changes and operating developments
- Property, plant and equipment increased to $43.7 million from $14.5 million at year-end, including $29.0 million of construction in progress. First-half capital expenditures were $24.9 million.
- Westwater continued construction of Phase I of its Kellyton, Alabama graphite processing plant. Site grading was completed in July 2022; the company also reported contractor mobilization, receipt of initial long-lead equipment components, and progress on utilities, foundations and plant buildings.
- Estimated Phase I construction and commissioning cost is approximately $202 million; approximately $30 million had been incurred to date. The company targeted commissioning by the end of Q2 2023, subject to financing, supply-chain conditions and other challenges.
- The company received its air permit in June and said it had all permits necessary to complete construction of Phase I. It had applied for a wastewater disposal permit required before operations begin.
- Exploration drilling at the Coosa Graphite Deposit was completed in April 2022. A resource model was expected by year-end. A potential mine start by the end of 2028 remains subject to feasibility work, financing and regulatory approval.
Outlook, risks and other items
- Westwater expects to rely on debt and equity financing for the foreseeable future and is considering project debt, convertible debt, government loans or grants, and partnership or joint-venture financing for plant construction. Additional financing is not assured; insufficient financing could require changes to business-development plans.
- Management cited inflation, labor shortages, supply-chain disruptions and volatile stock prices as risks to financing, plant costs and schedule. The company also noted uncertainty over eligibility for federal battery-material funding; no award is assured.
- The company’s Q2 loss improved partly because 2021 included an unrealized gain on equity securities, sold in Q4 2021. Lower product-development, exploration and arbitration costs also contributed to the year-over-year improvement; higher general and administrative costs partly offset it.
- The CFO was scheduled to retire effective August 26, 2022, with Chief Accounting Officer Steven M. Cates elected as successor effective that date.
- The company reported no material changes to previously disclosed legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of June 30, 2022. Results for the interim period may not indicate full-year results.
Important facts for investors to verify
- Whether Westwater can secure the funding required to complete Phase I beyond its stated cash runway and available equity facilities.
- Updated Phase I cost, construction progress and commissioning timing, including the status of the wastewater permit and supply-chain constraints.
- Whether the Coosa resource model supports economically viable graphite or vanadium development.
- Actual cash burn, future equity issuance and dilution relative to the company’s financing needs.
- Any subsequent federal funding decisions, customer contracts or project-financing arrangements; the filing provides no assurance of such outcomes.