Westwater Resources, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2020. Unless stated otherwise, financial amounts below are in millions of dollars. Westwater was shifting its focus to battery-grade graphite development at the Coosa Project in Alabama; it reported no operating revenue and said its last operating revenue was in 2009.
Financial results and position
- Revenue and margins: No operating revenue was reported. Gross margin is therefore not meaningful.
- Net loss: Third-quarter consolidated net loss was $9.751 million ($1.23 per share), compared with $1.834 million ($0.95 per share) in Q3 2019. Nine-month loss was $15.505 million ($2.63 per share), versus $7.783 million ($4.66 per share) in 2019.
- Continuing operations: Q3 loss was $3.362 million, up from $1.170 million; nine-month loss was $6.932 million, up from $4.731 million. Product-development expense rose to $1.641 million for Q3 from $0.019 million and to $1.942 million for nine months from $0.051 million.
- Unusual item: Discontinued operations recorded a $5.2 million uranium-property impairment charge in 2020. Discontinued-operations losses were $6.389 million for Q3 and $8.573 million for nine months.
- Cash flow: Cash used in operating activities was $10.134 million for the first nine months, versus $7.192 million in 2019. Investing used $0.107 million, versus $3.756 million provided in 2019. Financing provided $13.861 million, principally from stock sales and a $0.331 million PPP loan.
- Liquidity: September 30 cash and cash equivalents were $5.480 million; cash, cash equivalents and restricted cash totaled $9.287 million. Current assets were $15.217 million and current liabilities $9.899 million, including assets and liabilities classified as held for sale. Management reported approximately $53.3 million cash at October 31 following October equity sales.
- Debt and equity: The filing reports a $0.331 million PPP loan within liabilities held for sale, as well as operating lease liabilities. Total liabilities were $10.144 million at September 30. Common shares issued increased to 10.434 million from 3.340 million at year-end 2019; 19.022 million shares were outstanding on November 12, 2020.
Material changes versus prior comparable period
- Consolidated losses increased substantially, driven by the uranium impairment and higher graphite product-development spending. The Q3 increase also reflects a larger discontinued-operations loss.
- Operating cash use increased by $2.942 million year over year for the first nine months, which management attributed primarily to product development, general and administrative costs, and arbitration expenses.
- Westwater classified its U.S. uranium business and lithium activities as discontinued operations following its strategic shift toward graphite. It elected not to renew Nevada and Utah lithium leases.
- Equity financing materially expanded the share count. October 2020 sales raised $50.2 million net through Cantor and Lincoln Park; the filing reported approximately $53.3 million cash at October 31.
Outlook, management commentary and risks
- Westwater expected graphite pilot-plant operations to start by the end of 2020 or shortly thereafter and continue into mid-2021. The pilot program was intended to inform commercial-plant design; management expected graphite-product revenue in 2023.
- The commercial plant was estimated to require approximately $120 million in capital expenditures. Subject to financing, construction was expected to begin in the second half of 2021 and finish in mid-2022. The company was pursuing project financing; management said October liquidity funded planned non-discretionary expenditures through 2022, but not necessarily commercial-plant construction.
- A binding letter of intent provided for sale of the U.S. uranium business to enCore, expected by December 31, 2020, for approximately $2.0 million of enCore shares and retained New Mexico royalties. The deal was subject to due diligence, a definitive agreement and customary conditions. If completed, enCore was to assume reclamation liabilities and bonding obligations; Westwater estimated annual savings above $4.0 million. The transaction had not yet closed at the report date.
- Westwater retained uranium interests in Turkey. Its ICSID arbitration sought at least $36.5 million plus costs and interest; Turkey filed its Counter-Memorial in September 2020, with a hearing scheduled for September 13–17, 2021. The outcome and any recovery are uncertain.
- Key risks include dependence on future financing, dilution from equity issuance, graphite-project execution and market economics, permitting and regulatory matters, COVID-19 impacts, and the uncertain uranium sale and Turkey arbitration. The company also warned that unavailable project financing could require a change in business strategy.
- Management stated disclosure controls were effective as of September 30, 2020 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the enCore sale closed on the expected terms and whether bonding and reclamation obligations transferred.
- Post-quarter cash, subsequent share issuance and resulting dilution; confirm the financing proceeds and share counts against later filings.
- Availability and terms of project financing for the estimated $120 million commercial facility, and updated construction and revenue timelines.
- Pilot-plant operating results, product qualification, customer demand and the commercial viability of the Coosa Project.
- Progress and outcome of the Turkey arbitration, including potential timing and collectability of any award.
- PPP-loan forgiveness status and any remaining obligations.