Westwater Resources, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Financial amounts below are in U.S. dollars; statement amounts are generally in thousands. Westwater is an exploration and energy-related materials development company focused on uranium, lithium and graphite. It reported no revenue in the quarter or first half of 2018 or the comparable 2017 periods.
Financial results and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Net loss | $20.457 million | $2.639 million | $23.876 million | $0.795 million |
| Loss per share | $0.51 | $0.11 | $0.70 | $0.03 |
| Operating cash used | Not separately stated | Not separately stated | $6.090 million | $6.334 million |
- Q2 operating expenses were $20.736 million, including a $17.968 million impairment of Turkish uranium properties. Six-month operating expenses were $24.246 million. The filing reports no revenue, so operating margins are not meaningful.
- At June 30, cash and cash equivalents were $2.715 million, marketable securities $0.579 million, and restricted cash $3.668 million. Working capital was $2.2 million, down from $3.9 million at year-end 2017. Restricted cash is pledged for performance bonds and unavailable for general obligations.
- Total assets were $36.661 million, total liabilities $8.803 million, and stockholders’ equity $27.858 million. Liabilities included $5.644 million of asset-retirement obligations, of which $0.526 million was current. The balance sheet shows no borrowings at June 30.
- Six-month investing cash flow was a $0.026 million net inflow; financing cash flow was a $4.725 million inflow, principally from equity issuances. Cash, cash equivalents and restricted cash declined $1.339 million to $6.383 million.
Material changes and significant events
- Turkey’s mining authority revoked the Temrezli and Sefaatli licenses in June. Management concluded it was more likely than not that the company could not benefit from those properties and recorded a full $17.968 million impairment. The company is investigating remedies and potential compensation, which has not been recognized because its amount and collectability are not yet established.
- Westwater acquired all of Alabama Graphite on April 23, 2018, for stated total consideration of approximately $8.9 million, principally stock and cash. The acquisition added the Coosa graphite project in Alabama; its results are included from the acquisition date. The acquisition was accounted for as an asset acquisition.
- On June 14, the company raised $2.9 million net through a registered direct offering of common shares and pre-funded warrants. The warrants had a $0.01 exercise price. On August 7, Aspire Capital exercised them using net share settlement, and Westwater issued 4,825,509 shares.
- The company issued 200,000 shares for an option to acquire Nevada lithium claims and 172,727 shares for consulting services. Outstanding common shares at June 30 were 47.163 million; 51.996 million were outstanding as of August 8.
- Marketable securities declined in value: the six-month comprehensive loss included a $1.056 million unrealized fair-value decrease. The company also received $0.5 million from sales of Laramide securities during the first half.
Outlook, risks and contingencies
- Management expected working capital, the registered portion of the Cantor at-the-market (ATM) offering, the Laramide note receivable and anticipated financing to fund operations through September 30, 2019. It cautioned that additional financing may not be available on acceptable terms or in sufficient amounts; a shortfall could require material changes to business plans.
- The ATM had $7.8 million registered and available for sale as of August 8, 2018. The Laramide note has $1.5 million principal due in January 2019 and $2.0 million in January 2020; up to half of each payment may be made in Laramide shares. Its $2.0 million non-current face amount was carried at $1.242 million after discount at June 30.
- Management described a proposed graphite processing facility targeted for construction in 2020, following pilot-plant work planned for 2019, and a Coosa mine start-up planned for 2026. These are plans, not assured outcomes. The company cited customer qualification activity with more than 30 potential customers.
- Key risks include capital availability; commodity prices and demand; exploration, processing and permitting outcomes; integration and development of Alabama Graphite; and uncertainty over Turkish license compensation. The filing also describes a Canadian lawsuit seeking approximately $108,000 from Alabama Graphite over alleged severance obligations; the company had not yet answered the claim.
- Westwater reported no material changes to previously disclosed risk factors other than the Turkish license matter, no off-balance-sheet arrangements, and effective disclosure controls as of June 30.
Important facts for investors to verify
- Whether Westwater can secure sufficient funding beyond management’s estimated September 2019 liquidity horizon, and the resulting dilution from further equity issuance.
- The legal status of the Turkish license revocations, prospects and timing for compensation, and whether any recovery will be recognized or collected.
- The assumptions, financing requirements, pilot results, customer qualification and commercial feasibility behind the Coosa graphite development schedule.
- Timely collection and form of the Laramide note payments, including the portion that may be paid in shares, and the carrying-value discount.
- The scope, potential cost and outcome of the Bolton lawsuit and the company’s ongoing reclamation obligations.