Westwater Resources, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Westwater is developing battery-grade graphite products and the Kellyton Graphite Plant in Alabama; it reported no operating revenue and has not recorded operating revenue since 2009.
Financial results and position
| Metric | Q2 2023 | Six months ended June 30, 2023 |
|---|---|---|
| Revenue | None reported | None reported |
| Operating expenses | $4.0 million | $7.0 million |
| Net loss | $3.6 million; $0.07 per share | $6.0 million; $0.12 per share |
| Other income, primarily interest | $0.4 million | $1.0 million |
| Operating cash used | $8.9 million for the six-month period | |
| Capital expenditures / investing cash used | $51.9 million for the six-month period |
- At June 30, cash and cash equivalents were $17.3 million, down from $75.2 million at December 31, 2022. Current assets were $17.8 million and current liabilities $6.0 million.
- Total assets were $146.6 million, including $123.7 million of net property, plant and equipment; construction in progress was $109.0 million. Stockholders’ equity was $138.9 million.
- The filing reports no conventional borrowings. Lease liabilities totaled approximately $0.4 million; other long-term liabilities were $1.4 million.
- No operating margin is meaningful because the company reported no revenue and remains in development. For the six-month period, net loss was nearly unchanged from $6.0 million in 2022.
Changes versus the prior comparable period
- Q2 net loss increased to $3.6 million from $3.2 million, primarily because product development costs rose; higher interest income partly offset the increase. Six-month net loss was approximately flat year over year, while loss per share improved to $0.12 from $0.14.
- Six-month product development expense increased to $1.7 million from $0.6 million, reflecting customer sample production and work under the SK On joint development agreement. Six-month general and administrative expense increased to $5.1 million from $4.9 million, including about $0.3 million in severance related to the former CEO’s departure.
- Operating cash use increased to $8.9 million from $5.9 million. Investing cash use increased to $51.9 million from $24.9 million, principally due to Kellyton construction. Financing cash provided fell to $2.9 million from $24.5 million as equity sales declined.
- Cash fell by $57.9 million during the first half of 2023. The company sold 3.2 million shares for net proceeds of $3.0 million, compared with $24.5 million of net stock proceeds in the first half of 2022.
Business developments, outlook and risks
- Kellyton Phase I construction continued, but activity was reduced pending additional funding. Five of six processing buildings had been erected; the company reported receipt of long-lead equipment components and construction and operation of an R&D laboratory.
- An optimization study raised expected Phase I throughput capacity to 16,000 metric tons per year and expected coated spherical purified graphite production to 7,500 metric tons per year. Estimated Phase I construction cost is approximately $271 million; incurred capital costs, inclusive of liabilities at June 30, were approximately $110.3 million.
- The company is negotiating a potential supply agreement with SK On and signed a letter of intent with Dainen for potential CSPG supply. Neither disclosure establishes a completed sales contract. A Coosa Graphite Deposit preliminary economic assessment was expected in Q4 2023.
- Management states that planned non-discretionary expenditures for the year after the financial statements’ issuance exceed cash on hand, excluding financing opportunities and existing equity facilities. The filing says substantial doubt exists about the company’s ability to continue as a going concern. Additional financing is needed; management is considering equity, project or convertible debt, and a partnership or joint venture.
- As of June 30, the company reported approximately $18.6 million of potential remaining ATM offering capacity, subject to Form S-3 limits, and 8.8 million shares available for future sales under the Lincoln Park agreement. Equity issuance may dilute shareholders; financing may not be available on acceptable terms. Without funding, the company may further curtail or pause construction, change plans, or reassess asset recoverability.
- The company has not recognized the arbitration award against Turkey because collection was not considered probable. The March 2023 award provided for approximately $1.3 million in damages, $3.7 million in arbitration costs, and interest to be determined. After quarter-end, on July 27, the tribunal denied Westwater’s rectification request and awarded Turkey approximately $54,000 for its costs.
- Management identified graphite prices and supply, customer contracting, construction cost and schedule, equipment availability, inflation, interest rates, permitting, and access to capital among key risks. Management reported effective disclosure controls as of June 30, 2023.
Important facts for investors to verify
- Availability, timing, terms, and dilution effects of financing sufficient to complete Kellyton Phase I, and the resulting construction schedule.
- Whether the estimated $271 million Phase I cost and proposed capacity can be achieved, including exposure to cost overruns and equipment or supply-chain delays.
- Progress from the SK On JDA and Dainen letter of intent to binding customer agreements, and the expected commercial start and revenue timing.
- Cash use and liquidity relative to planned spending, and the status and collectability of the Turkey award and related $54,000 cost award.