Q1 2020 Earnings Call

Thank you for standing by this is the conference operator, welcome to the West water resources Inc. first quarter 2020 results and business update conference call.

As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation there'll be an opportunity to ask questions to join the question Q You May Press Star then one on your telephone keypad.

So do you need assistance during the conference call you May signal, an operator by pressing star and zero I would now like to turn the conference over to Chris Jones, President and CEO. Please go ahead Sir.

Thanks I real.

And good morning, everyone.

Welcome to the West water resources first quarter, 2020 results and energy minerals business update conference call.

We appreciate all of you joining us this morning.

For all of you on the call I Trust you on your families are healthy and safe.

Joining me on the call today is just federal our CFO and Vice President Finance and Dain Mccoig, our vice president of operations.

I would like to remind our listeners to read our cautionary statements on the following pages.

As we won't be discussing some forward looking statements and information.

Turning to slide three.

Last water is a green energy material developer.

Diverse portfolio of assets and graphite lithium and uranium.

We are in the process now developing a battery ready graphite business in Alabama scheduled for production on 2022.

And now with him with an ATM discovery, and we'll talk about down a bit later.

We're exploring for lithium in Nevada.

Tiley, two highly perspective properties.

And we retain leverage to a rising uranium price what to license processing plants in Texas and about 200000 acres of mineral rights and development properties in Texas and the Mexico.

But before we speak plans and results please turn to slide for.

Our first priority as the safety of our employees their families and the community in which we operate.

We have worked with our teams staying local authorities as well as integrated guidelines from the CDC to ensure our employees and their families for sale.

Let's see here or a few of the measures we put in place to make sure. We can work safely together.

Our sites in Texas in our office in Colorado, How site specific requirements. In addition to those listed here.

On slide five.

We speak to ensuring our business assays as well.

Processing product development continues without interruption or delay.

Our partners in Germany.

Partner adds a plan continue to turn out test results that are helping US design, our pilot plant for operation in the fourth quarter of this year.

Our plan to finance, our business continues without delay as well.

Lets shares to be issued to Lincoln Park capital approved by our stockholders last month, we can work to enter into an agreement for an equity line of credit along similar lines as our last one hand with an ATM in place.

We can use these capital markets to our advantage.

In addition, our subsidiary in Texas was able to secure a P.P.P. loan of approximately $331000 to the freight expenses for our employees there as well.

Also in a win for our side.

The excellent tribunals ruled that the Republican turkeys request argue jurisdiction was turned out.

And we can proceed to argue the merits of the case.

We have requested a 36 and a half million dollars plus fees in our operations from the Republican Turkey Memorial any hearing is scheduled for September 2021.

With that I'd like to turn it over to Jeff Vigil, our CFO Jeff.

Thank you Chris good morning, everyone.

On slide six let's look at our capital structure.

Calling share price yesterday with $1.52.

Actually 5.69 shares outstanding leaves our market capitalization at about 8.5 million.

During the first quarter 2020, our stock performance was influenced largely by the current virus pandemic.

Which impacted the entire market that has made it.

Maybe it particularly challenging for then environment for a small cap companies.

W.W. our share price decreased 63% during the 2020 training sessions from February 14, 2022 March 16 2020.

That's from $2.57 to 95 cents.

Over nearly the same period, the Dow Jones industrial average dropped almost 11000 points.

I see uncertain economic conditions and tumultuous kept the markets we face in quarter one.

Able to maintain adequate liquidity to keep our graphite business moving forward and avoid workforce reductions at or South Texas operations.

Now turning to slide seven our financial summary for the first quarter 2020.

Net cash used in operating activities was 3.5 million for the quarter.

That's compared to 2.79 for the same period and Tony light team.

The increase in cash used during the current quarter was primarily due to the legal and consulting costs related to the Turkey arbitration process.

For the quarter ended March 31, 2020 minimal property expenses increased by approximately $100000 paired with a corresponding period and 2019.

The increase was primarily due to work related to the.

PC graphite project.

General and administrative expenses were approximately $100000 higher than the corresponding period and 29 team.

The increase was primarily due to higher consulting payroll and insurance costs.

Our consolidated net loss for the three months ended March 31, 2020 was three point Threemillion.

Or 82 cents per share.

As compared with a consolidated net loss of 3.1 million.

$2.15 per share for the same period and 29 team.

It's 200000 dollar increase in our consolidated net loss.

Part was partially due to the result of increased legal and consulting expenses related to the Turkey arbitration process.

On March 31 2020.

These cash balances were approximately $900000.

And you tell me how to working capital deficit of 2.2 million.

We are grateful to our shareholders for improving our proposal to enter into a new financing agreement with Lincoln Park capital.

Annual shareholders meeting, which we held on April 28.

Once the new agreement is in place.

To be able to maintain funding levels to support our current business plan.

Did the pandemic surge in the coming months and negatively impact the capital markets. We will carefully review our resource allocation priorities is to take necessary actions to stem the company for the long term.

And with that I'll turn it back to you Chris.

Thanks, Jeff.

On slide eight.

Listed our asset portfolios it stands today.

This includes arcos, a graphite project, our lithium projects are uranium assets and our vanadium discovery.

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Turning to slide nine.

Our KUSA graphite project will position Westwater as the leading battery grade graphite supplier in the United States.

Located in Western comes a county in East Central Alabama, We are ideally situated geographically to take advantage of the rapidly growing energy minerals end markets <unk>.

Which includes several of the leading battery and automobile manufacturers.

I will discuss in the next several slides al milestones we've met in the project have allowed us to accelerate our planning, which will be the catalyst to securing contracts realizing revenue and cash flow opportunities quicker.

Than originally anticipated.

I will also speak to the strengthening fundamentals that underpin our efforts to develop the project.

You asked is currently 100% important dependent for gratifying with current global graphite production control by China, which may not practice environmental standards equivalent to those in the United States.

Having a domestic supply of graphite provides.

Improved operational efficiency, while not compromising product quality and superior environmental performance.

Turning to slide 10.

We plan to construct the KUSA graphite processing consultant to produce the three advanced battery graphite products that are on this slide that have been developed and demonstrated in laboratory scale processes over the past several years.

Sure if I'd micronized graphic her or ultra PMT.

The laminated expanded graphite ultratechs teaching.

Encoded spherical purified graphite or ultra see SPG.

We announced last year that we were requested to provide a bulk sample of one metric ton or 2200 pounds of our ultra PMG products for further testing.

So why is this such an important milestone.

I don't qualification testing it battery manufacturers is typically a staged approach each test dependent upon the success of the last.

Our product has asked the initial testing rounds, consisting of a few grounds than a kilogram in size.

As these tests are successful manufacturers then ask her a bulk sample of the material.

The fact that Weve reached this advanced stage demonstrates the high quality of the products that we developed to meet the requirements of the worldwide battery industry.

On slide 11.

We've provided a flow chart illustrates the battery graph like manufacturing process, we are undertaking.

We have secured the 95% to 98% puregraft like concentrate for the pilot and initial production and plan on transitioning to mind feedstock in 2028.

This first step in processing graphite concentrate as to pure clarify the material to 99.98% fewer carbon.

From their sizing sorting and shaping has performed with jet and also in our class fires.

Turning to slide 12.

We provided updated economics for the KUSA graphite project.

We're projecting a cap ex of $53.4 million by 2000, 2020, 2022, which includes a 15% contingency and allowance for working capital.

We anticipate the first year of positive cash flow in 2023.

But the pre tax NPV of $481 million and an internal rate of return a 41%.

These figures don't count for the potential upside from our future vanadium exploration, which can enhance these economics.

Were considering equity project level debt and joint venture structures refinancing.

Turning to slide 13.

You see a map showing our Columbus space, and then salary Cup projects in Nevada, and Utah, respectively, which we established in 2016.

We currently control mineral rights encompassing approximately 36920 acres across two perspective lithium brine basins.

The Columbus Basin project now covers more than 14000 acres with good I was available and ample groundwater access.

We on the water rights for this project.

For the Sal Rica project, we have more than 13000 acres in Utah.

With good road and power access sample results up to 100 parts per million from show aquifers have already been made public.

We were recently granted water rights for the use of 1500 acre feet of groundwater per year in state of Utah.

The right to use water is very important linear at American west.

These rights are essential to the development of lithium brine resources at both projects.

On slide 14.

Despite what's been a challenging environment for uranium over the past several years, we're starting to see a come back and uranium prices.

Perhaps the biggest recent catalyst has been the result of the nuclear fuel working group report, which represents a fundamental shift a nuclear policy not seen at the federal level in several decades.

Included in the report or several initiatives to London support the purchase of uranium from domestic producers for the creation of a new national stockpile.

This is a uniquely bipartisan issue as the United States relies heavily on nuclear power for carbon free base load electric electricity.

With more than 20% of all uranium produced in the world consumed here in the United States.

Nuclear power represents the only electrical base load solution for global electric power growth driven by carbon emissions reduction.

Uranium, it's still a strategic focus for Weslock.

There are expected to be 35% more nuclear reactors in 10 years and there are right now and they all need uranium to produce power.

In addition.

India, Russia, and Korea are building reactors or a border over 130, new reactors.

We think the demand side is going to grow as these reactors come close to going online.

Spot market prices for uranium concentrate our up from $17 per pound in 2016 $34 today.

On slide 16.

We announced early last year in the discovery is significant widespread levels with an ATM concentration throughout the central portion of the KUSA project.

The widespread distribution of highly anomalous vanadium mineralization is commonly associated with strong graphite mineralization since the initial discovery.

I'll use that had been determined through an independent analysis.

I have to have shown a high grade of Canadian contained in the rock.

Which according to current market prices reflects a potential opportunity for westwater, the steel markets, providing a base slowed demand for uranium as well as increased use in electrical storage systems.

These factors shape, the landscape or unexpected increase in demand for Canadians.

Turning to slide 16.

Our company is led by a team of a highly tenured leaders with track records of highly disciplined management and we've maintained diligent capital stewardship we.

We restructured and recapitalize the company over the past several years repositioning wastewater as a diversified energy materials company.

Our team has demonstrated history of developing mineral properties from concept to all the way to production.

In a proactive merger and acquisition programs helped reposition westwater singular uranium asset base into a portfolio of diverse low cost production assets, which include graphite lithium and behavior.

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Moving to slide 17.

Why would somebody consider westwater isn't investment opportunity.

I think based on what we presented today and what we anticipate and our plans for developing our green energy materials.

Westwater as a compelling investment opportunity.

We benefit from strong fundamental market drivers, which we expect will lead to improved pricing and greater demand.

We've put financial mechanisms in place to ensure we can fund our business today.

Finally on slide 18.

Westwater will purchase concentrated graphite from a third party for processing in our manufacturing plant in 2022.

Please remember that this contract is already in place.

We have a strong asset portfolio.

But upside potential.

Adoption of electric cars and buses is forecasted to grow at a 23% compound annual growth rate and they use batteries containing graph.

We are a proven management team with experience in energy materials development and financial management.

Milestones Investor should look for throughout the remainder of 2020 include further updates on our KUSA graphite project developments and achievement.

Please look for those as we go throughout the year.

I want to thank you for spending your time with us and with that I'm happy to take any questions.

Thank you you will now begin the question and answer session to join the question Q. Please press Star then one on your telephone keypad, you'll hear a town acknowledging yard class.

If you are using a speakerphone. Please pick up your hands that before pressing any keys to withdraw your question. Please press Star then to.

To join the question Q. Please press Star then one now.

Our first question comes from Debra Fiakas of Crystal equity Research. Please go ahead.

Oh, good morning, and thank you.

Hi, My first question is perhaps a for a Jeff I wondered if you could elaborate just a little bit on the EUR 300000 that you received from the stimulus program. The three piece program.

Is that a commitment for a certain number of people for a certain period of time.

In order for it to be converted into a grand rather than alone.

Uh huh.

Good morning, Debra and that's a good question and we'd looked very hard at that.

And we very specifically.

Took out the loan that a subsidiary level for you you are right energy East, that's our Texas subsidiary and spray specific to the employees.

The we have working in South Texas.

And it's so it was certainly designed to keep our employment.

And our employees in place.

Our permitting reclamation activities in South Texas.

And without that.

I would suggest that alone without the loan proceeds we would have had a difficult time given that that's your question about forgiveness convert into grant I, we're very confident and when we did the calculations a great confidence that we'll be able though to a yeah. When we get a very close it's not.

All of the forgiveness and the one thing I would like to point out is that the <unk> as I mentioned in my portion of the Oh that the discussion.

Very challenging quarter for us a into this came out with.

Yes. These proceeds were quite important to us and a one thing to note as it did not include any of the did any of our corporate group and Centennial, Colorado. So I just I want to do you want to specifically.

I mentioned that and say that was very directed towards maintaining our workforce in south Texas.

Okay, and if I can follow up on that you said that you'll get very close to you know as qualifying fully for the for the for the loan forgiveness and having it converted into a grant is it a matter of not having enough work for everyone to do such that they would be employed for a long enough period or that the new.

Number of people would be employed for a long enough period, and then also I wanted to ask you.

What is the new employee count for the entire company. If you could I I wondered if that had changed in the last few months.

No. It is not the answer question, we have 23 folks in South, Texas, and we have a seven.

Hmm Centennial and one located in Nevada.

Sorry head count.

And and so we.

We Fortunately, we've been able to maintain that headcount so I don't see any <unk>.

Yes, you can ask being able to during Oh, the calculations based on two and a half months of payroll and benefits cost for the South Texas employees and during that the.

Back to lead a 60 day period after receipt of the proceeds we attitude.

I'm sure that 75% of the old proceeds was directed towards.

Payroll and benefits costs I did not see problem and.

Conflicts that.

Excellent. Thank you and then also if I could ask another question I was hoping to.

Learn a little bit more about.

The work that's being done in Germany, maybe just tell us I appreciate that its engineering activity, but.

And I assume that they've been working from home I know that there have been some restrictions and in Germany as there have been here in the United States, which is perhaps quite easily accomplished a given our computing capacity and so forth, but I also wanted to just learn a little bit more about what what it is that they're working on is it a matter of chemistries is it.

You know mechanical designing of mechanical process sees what could you, perhaps just give us a little bit more color on what it is that the group in Germany is doing.

Yeah, Deborah I'm happy to take that and good morning to.

The the work they're doing a first of all the lab itself is located.

But very up in a little town near Hamburg.

And as you might expect lab work is done basically with.

Active gear on anyway, and they were able to continue a without stopper interruption.

And practicing.

Save self distancing.

As well as as protecting their health and we're happy to report nobody is reported any or any illnesses whatsoever. It at that lab.

Work, they're doing is is designing.

The method of upgrading our production level.

From the ground level to the kilogram level and in onto our pilot plant level as you might expect lab processes translates partially but not fully into production level processes and that's what we've been asking them to do.

The results thus far has been good in solid and and as we reported on our in our presentation without interruption and on time.

So we're super pleased with what they're doing all the work we're doing right now as pointed at running our pilot facility in the fourth quarter. This year and were on time.

Excellent and if I could just sneak one more question and this is on an entirely different topic in regard to the uranium it's been a lot of chatter about uranium stockpiles and a special committees and so forth here in the United States and I wondered if you can also just give us some.

Hi level color on the impact of uranium pricing not only on and and this whole stockpiled concept not only on your decisions as to whether you produce and not produce but also on your company's asset values to be I portfolio of.

Various energy materials assets.

And as regards to the uranium.

Oh, just how does the value of your report that uranium portion of your portfolio how has it impacted by by pricing and changes in pricing.

Great question and in terms of.

Let me begin that question just little bit the return to work to returned to production issues around pricing ours are still north and the current price so that $34 a pound, which is a you know virtually a doubling of price since.

Twentys 15, 16 times right up it's still shy of almost all production cost in the United States on an all in sustaining basis.

So you might consider that taxes, and and all Texas operations tend to need about $45 or better upheld a to restart production.

As a breakeven price.

And the underground operations tend to need something north of 60.

So there's still a lot of work to do and in the price before there's actually a return.

Sure we call it incentive pricing for production.

That said.

The working group.

Has has made a number of recommendations and had expressed concern about the supply chain and United States and to that end. They recommended and it is included in the President's budget proposal for fiscal year 2021.

A 1.5 billion that's billion whether it be dollar expenditure monies to secure the strategic stockpile of uranium so that the nation's fuel supply is secure.

That is split up into $150 million year for 10 years and in the budget proposal.

I'll just go your 2021 of course begins in October and its hard hard to expect that there will be a budget approved between now and October.

But it could happen, but the proposal is already written.

It is already submitted and I think uranium industry as a whole and and less water resources is pretty pleased about that.

Thank you.

Once again, if you have a question. Please press Star then one.

This concludes the question and answer session I would like to turn the conference back over to Mr. Jones for any closing remarks.

Thanks, again area and thanks to you all for taking time out your Dan listening to our call.

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Yeah, Great day have a safety.

This concludes today's conference call you may disconnect your lines, thanks for participating and have a pleasant day.

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