Business context and reporting period
Westwater Resources, Inc. (formerly Uranium Resources, Inc.) filed this unaudited Form 10-Q for the quarter ended March 31, 2018. It was an exploration and development company focused on uranium, lithium and, following an acquisition completed after quarter-end, graphite. The company reported no revenue in either Q1 2018 or Q1 2017; operations were principally exploration, standby care and maintenance, and restoration and reclamation.
Financial results and position
| Metric | Q1 2018 / March 31, 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | None | None |
| Net income (loss) | $(3.419) million; $(0.12) per share | $1.845 million; $0.09 per share |
| Comprehensive income (loss) | $(4.356) million | $2.275 million |
| Operating expenses | $3.510 million | $2.607 million |
| Operating cash flow | $(3.696) million | $(3.287) million |
| Investing cash flow | $0.628 million | $1.950 million |
| Financing cash flow | $0.651 million | $7.887 million |
| Cash, cash equivalents and marketable securities | $2.242 million unrestricted; $3.668 million restricted cash | — |
| Working capital | $1.2 million | $3.9 million at Dec. 31, 2017 |
| Total assets / liabilities | $46.311 million / $8.818 million | $50.238 million / $9.121 million at Dec. 31, 2017 |
Margins are not meaningful because the company had no revenue. The balance sheet listed no borrowings; liabilities included $5.723 million of asset retirement obligations, of which $0.936 million was current. Restricted cash is pledged for performance bonds and is unavailable for general corporate obligations.
Material changes and notable items
- Net results declined by $5.264 million year over year, primarily because Q1 2017 included a $4.422 million gain on disposal of uranium properties. Q1 2018 also included $0.755 million of Alabama Graphite acquisition costs, a $0.093 million loss on marketable securities, and higher general and administrative expense.
- Operating cash use increased by $0.409 million year over year, primarily due to acquisition-related cash costs. Cash, cash equivalents and restricted cash declined by $2.417 million during the quarter.
- Other comprehensive loss of $0.937 million reflected a fair-value decrease in available-for-sale securities. The company also sold Laramide shares for net proceeds of approximately $0.5 million and recorded a $0.093 million loss.
- On April 23, 2018, after quarter-end, Westwater completed its acquisition of Alabama Graphite, issuing 11,625,210 shares; former Alabama Graphite holders received approximately 28% of the combined company. Purchase accounting and pro forma quarterly results were not yet available in this filing.
- In April, the company issued 200,000 shares and granted a 1% net smelter return royalty to acquire additional Columbus Basin lithium claims.
Outlook, risks and contingencies
Management said working capital, together with expected proceeds from equity financing agreements, was expected to fund operations through June 30, 2019. As of May 7, 2018, approximately $28.6 million remained available under the Cantor at-the-market program and $18.7 million under the Aspire Capital agreement; Aspire capacity was subject to an exchange cap and other conditions. The company was also considering further fundraising, asset monetization and spending reductions. Management cautioned that financing might not be available on acceptable terms and that insufficient funding could require material changes to business plans.
The company planned to continue evaluating lithium properties and advance its uranium projects when prices permit economic development. Its outlook is exposed to commodity prices, capital availability, permitting and regulation, exploration and geological uncertainty, project operating conditions, and the ability to integrate Alabama Graphite and develop its graphite project. No quantitative production or financial guidance was provided.
Westwater was conducting reclamation at its Rosita and Vasquez projects; it reported $5.723 million of total asset retirement obligations. The Texas Supreme Court resolved the Kleberg County dispute in favor of Westwater’s subsidiary in March 2018. Alabama Graphite was a defendant in a Canadian defamation lawsuit seeking CAD $3 million plus unspecified punitive damages; it denied the allegations and filed counterclaims seeking CAD $7 million plus other relief. The filing stated the matter was preliminary, with no trial schedule. Management reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the planned financing can be raised in practice, including the Aspire share-count and price restrictions, and whether the stated runway remains sufficient.
- The final purchase-price allocation, acquired assets and liabilities, and post-acquisition operating results for Alabama Graphite, to be disclosed in a later filing.
- Cash burn, reclamation spending and the adequacy of asset retirement obligation estimates.
- Changes in the value and liquidity of Laramide securities and notes receivable, and collection of amounts due.
- Progress, permitting, economics and capital requirements for uranium, lithium and graphite projects, and developments in the Alabama Graphite litigation.
- Post-acquisition dilution: the filing reported 42,279,775 common shares outstanding as of May 7, 2018, following the acquisition share issuance.