Q1 2021 Westwater Resources Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Westwater Resources, Inc. First quarter 2021 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.
And Q you May Press Star then one on your telephone keypad should 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 Christopher Jones, President and CEO. Please go ahead Sir.
Thanks, Ariel and this is Chris challenge on the President and Chief Executive Officer of Westwater resources and.
And welcome to our call. This is our Q1 results call and.
Joining me here today are Jeff vigil, our CFO and Dain Mccoig, our VP of ops.
On to slide two.
And I encourage everybody to read the cautionary statements, we may be referring to forward looking information.
During this call.
Slide three.
We continue to ensure the safety of our employees and the communities where we work.
And in accordance with local and CDC guidelines and we reopened our office from Santander.
Yeah.
We continue and ensure that our employees are permitted and encouraged to take time off due to illness 40 on most of those around them without penalty.
On slide four.
We continue to work with our business partners to maintain our advanced battery graphite product development schedule and our pilot well.
And our pilot program and has now produced stomach routine metric tons of battery crap on it and.
Multiple prices over all three of our products.
We continue to work to ensure adequate financial liquidity to support our key operations and business activity and we have a cash balance of $119 million at March 31.
And Westwater continues to proceed and its case for compensation from the Republic of Turkey.
Our hearing is scheduled for September 21, we are on track and we request 36, and a half million dollars.
Let's see.
And Jeff.
And I'll turn it over to you.
Okay.
Yeah.
Thank you Chris good morning, everyone.
First let's take a look at our capital position on slide five.
Closing share price on Tuesday March 11th was $3.88.
And with approximately 32 3 million shares outstanding.
Market capitalization stands at approximately $125 million.
Share price began 2021 at $4.93 and.
And we ended the first quarter at $5.37.
Average daily trading volume over the 61 trading days of the quarter was $8 9 million shares.
During the first three months of 2021.
Our stock performance was largely influenced by the continued ups and downs and the capital markets due to the countries.
And our continued reaction to news about the COVID-19, pandemic and recently about and inflation and supply shortages.
Share prices for electric vehicle and battery material equities were boosted in February and my President bite and his executive order and reiterating the prior administrations declaration of a national emergency for U S domestic production.
Critical minerals, including graphite and vanadium.
Yes.
During the first quarter 2021 and come to utilize this ATM facility with Cantor Fitzgerald and his equity line of credit with Lincoln Park capital raise of approximately $72 million from stock sales.
And taken advantage of this opportunity to raise a substantial amount of cash at a low cost of capital.
The company is now on a fundamentally strong positioned to execute its budgeted business plans through 2020 two.
<unk> funding for the construction of phase one of the graphite processing facility.
On slide six we provide a financial summary for the three months at March 31, 'twenty and 2021.
Net cash use and all operating activities was $4 9 million for the quarter ended March 31 2021.
As compared with $3 5 million for the same period in 2020.
The 1.4 million increase and cash used was primarily due to increased product development expenses.
Mostly related to our battery grade graphite pilot program.
And the 300000 dollar increase and general and administrative expenses.
The increase and general and administrative expenses was primarily due to increased legal and consulting expenses related to the company's Coosa graphite project.
Also during the quarter to come in and spent approximately $1 5 million on legal and expert consulting costs for the I C. S. I D arbitration proceeding.
And the key hearing and this arbitration process is scheduled for September 'twenty, 'twenty, one and as Chris noted.
The net loss from continuing operations was $5 4 million.
And $3 3 million for the three months ended March 31, 'twenty, 'twenty, one and 'twenty 'twenty respectively.
The $2 1 million increase compared to 2020 was largely the result of the increase and graphite product development costs general and administrative expenses and.
And arbitration costs as noted earlier.
Set by the elimination of $1.1 million and costs from the discontinued operations from 2020.
Yeah.
On March 31, 2021 the company's cash balances were approximately 118 million and.
And the company had a working capital balance of $115 million.
On may 7th our cash balance was approximately $116 million.
These cash resources will be used to fund ongoing operations fund development of the graphite business plan.
And again provide the cap the funding required to build phase one of the commercial and.
Production plan.
Finally, I'd like to welcome Steve case to their Westwater executive management team as our Chief Accounting Officer.
Steve has been designated as Debbie Debbie Ars principal accounting officer.
Steve is a proven financial managers, whose skills and experience will be instrumental and the upcoming stage of anticipated growth and value creation at westwater.
With that I'll turn it back to you Chris.
And thanks, Jeff.
On to slide seven.
And just a reminder.
Our core values are simply the safety of each other our.
And our environment, our assets and the communities, where we work.
And our reputation.
Second core value is cost management.
And that you are inefficient use of our shareholders' assets and focused on first quartile cost performance.
And integrity.
And as level of performance every day improving.
Improving our processes and conservative promises Wildcat.
On slide eight.
We are the owner of the leading graphs on the development property in the United States.
And our pilot program and successfully produced over 13 metric tons of battery graphite using our proprietary purification process.
And our definitive feasibility is underway and unexpected completion in Q3 and 2021.
Slide nine.
Results and step by step from our pilot program include almost 17000 kilograms of purified and material. This is the graphite material needed for scrap battery graphite production.
And this process differentiates us from all of our competitors.
Spiracle purified graphite production week.
Produced about 4600 kilograms and as of this as of this moment net.
And that includes funds.
On slide 10.
Our ultra <unk> D. G production at this point is 310 kilograms and material.
And purified Micronize, Kraft liner or PMG product, almost 8400 kilograms and material product and client sizes.
The pilot program has already provided key inputs from the definitive feasibility study.
And again I'm on slide 11.
And more than 13000 kilograms.
<unk> produced for testing by Westwater and our prospective customers.
On slide 12.
To that and.
And we have engaged Samuel engineering to lead a group of engineering contractors, and the United States and Germany to.
And to complete our definitive feasibility study from the crews of projects commercial production plant.
Expect this study to be complete.
And Q3, with a plus or minus 15% estimate a capital cost and operating expenses.
On slide 13, again, our key attributes and Differentiators.
<unk> technology for pure play and graphite.
Lighter environmental footprint.
Simple and robust process and with <unk>.
<unk> costs that are competitive and the industry.
We are a U S manufacturing battery grade graphite, giving us advantage and shipping costs as well.
And with the vanadium discovery on the cruise a project.
We can perhaps.
Improved project economics, and Theres, no downside of course, having on them.
On the property.
And sustainability.
This does and environmentally sustainable process and our graphite can save over 200000 tons a year.
Oh, two machines when used in electric vehicles.
On slide 14.
And for battery segments, where we are participating certainly and transportation. These.
These are the evs, meaning luxury cars and electric buses, we expect a 23% growth rate over the next 10 years.
It's predominantly lithium ion batteries and qualification cycles are between three and five years as we go forward.
These qualification cycles, and I want to remind everybody our unique and our business, we prequalify on material when they go to our customers.
Yeah.
Energy storage systems and by that we really need large yes.
Think of grid energy storage systems, we expect and 11% growth rate over the next 10 years again, the quality qualification cycles for about five years.
And these are the enabling technologies for wind and solar power and farms can produce electrical power and no one does not go out and.
Solar farms can produce power and that's on this part shine.
Third market and consumer electronics.
<unk> three per se compounded annual growth rate think of this as a very mature market.
These are the batteries like a laptop you may be sitting at right now and that's in your hand.
Many customers many batteries quite differentiated many sub segments and players qualification cycles tend to be and the one to three year timeframe.
And specialty markets. These are defense.
Aerospace medical and everything from pacemakers to specialty batteries for the military.
And niche market and an important market for the United States.
We're developing products for all four of these pod based partners.
And on slide 15.
Graphite is a critical component of all types of batteries. These include lead acid batteries like that and the car you probably go on this morning.
Oakland power sales like this the batteries and flashlights and smoke detectors and normally you sit right now and Nonreturnable lithium ion and so I'm not sure.
Lithium salts.
Our C. S. P. G product is a critical component and lithium ion batteries.
You might see a tesla coming down the road and <unk>.
800 pounds of batteries and 200 pounds and graphite.
And the United States Government has defined graphite has quote critical to the nation's security and prosperity unquote and presidential executive orders and I mean portal.
<unk> U S government agencies to act with Alacrity.
On slide 16 and cool.
And the graphite project as a near term source of domestic U S battery grade graphite samples are being sent to potential customers.
Westwater scrap might will be produced using environmentally sensitive.
Sensitive and sustainable processes in the United States and.
The westwater graphite products serve all battery markets.
And Westwater as vanadium discovery of cruiser could contribute revenues exploration is now under way.
And again, our three products on.
<unk> P M D and that's our purified micronize graphic that's the stuff that goes into lead acid batteries.
On power sales.
And the conductivity and enhanced ultra XD and she is a high performance version of that product and it is.
It improves further conductivity and batteries and the target markets include lithium ion and lithium primary and lead acid and alcohol and power sales essentially all battery market.
And our C. S. P G. The ultra C. S. P. G. We're producing now.
Has uh huh.
Goes into high performance.
Lithium ion batteries and as the anode material number it's about 20 to 25 per cent of the lithium ion battery constituents.
And target market is rapidly growing electric automobile sector.
And again.
When used in electric vehicles, partially S. P. G can save over 200000 metric tons and C O two emissions per GAAP.
On slide 18.
A reminder, and.
Westwater has developed and new technology for graphite purification and we've applied per provisional patents with the U S patent and trademark office for this technology.
It has a more sustainable footprint than those currently used in China or environmentally damaging and expensive to manage hydrofluoric acid is used.
And our process yields pathetic carbon grade of more than 99.95%.
Net three step process allows for flexible feedstock and consistent performance.
Our process consists of three process steps, including costing hosting of the graphite concentrate sample acid leaching of the prostate and sample and then thermal treatment of the sample to flash off any remaining volatile.
And on Slide 19, and as Jeff said simply we have raised the funding will mean for phase one construction.
On slide 20.
Our project plan and stuffs.
Our feasibility study led by Samuel Engineering is underway for expected completion in Q3.
Exploration drilling has begun from vanadium and further work and graphite deposits definition.
Full scale production is expected from seed purchase feedstock in 2022, producing battery grade graphite.
And Westwater expects to begin mining at the Coosa graphite project deposit and Alabama, beginning in 2028.
On slide 22, our graphic telling you very same thing smelter and those of you.
Her gladsome calendars.
On slide 22.
The same team we talked about eight weeks ago with the addition of Steve Capes as Chief Accounting Officer. This team is being built expanded and.
And being made more robust and real time as we develop this particular business.
On page 23.
Really put experience matters.
And energy minerals development and exploration requires discipline and diligent capital stewardship.
We've restructured and recapitalize the company repositioning Westwater as a green energy materials company with a laser focus on battery grade graphite products.
Our experienced management team has a demonstrated history and finance and Green energy development from concept to production.
And we've executed a proactive M&A program, including the sale of noncore uranium properties to redeploy capital expanding our resource base into green energy and materials.
On slide 24.
Why westwater as an investment.
Well again, we have a battery grade graphite development is on us with strong upside potential.
Graphite has been designated a critical minerals and by the United States come from.
Now we have a proven management team with experience and energy minerals development and financial management.
And you should anticipate catalysts for the remainder of this year in terms of KUSA exploration results are.
And our feasibility study results and Coosa Graphite project development and project milestone achievement has been all along.
And with that.
I'd like to open it up for questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear atone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
We'll pause for a moment as callers join the queue.
Our first question comes from Debra <unk> of Crystal equity Research. Please go ahead.
Thank you good morning, and thank you for taking my questions.
Wanted to ask just sort of a mop up question too Jeff in regard to the reported arbitration expenses of course, there was quite a bit and work that had to be done and the.
First months of the year to provide a rebuttal to Turkey's.
Response, and so forth do you anticipate that there will be additional work that has of this nature of this level that has to be done.
And the current quarter and the next quarter I'm, just trying to get an idea of what your cash usage might continue to be in that regard.
And yeah, that's very good question Deborah.
The <unk> the <unk>.
<unk> will accelerate in July for the and.
On July and August it will be fairly active and prep for the September mid September hearing him, but the one thing I would note is we do have a cap on fees.
And so that will mitigate somewhat of the the expense.
And that we're going to incur during during the upcoming and it's really it's it's cute are Q2 and Q3.
But yes, well, we'll see some very much some increased activity as we are as we do the preparation for the hearing.
Okay excellent. Thank you very much and of course and congratulations to your new member of your team and Mr. Kate So do you plan on doing other or additional it.
Sure.
Creation, and and new hires and if you could maybe give us if so could you give us an idea of what types of positions you would be adding throughout the rest of the year.
Deborah if I may and and thanks again for your question.
Between now and the end of 'twenty 'twenty, two we're gonna put on 140 people.
And that represents everybody from operators.
Through management so I.
I would.
I would encourage you to adopt a wait and see attitude as we as we bring these people on our intention is to hire as many local.
People in Alabama is as is possible to do and.
And and to make sure that we have a strong.
Management team going forward, so that we can build.
And commissioned this facility.
And with minimal complications.
Okay. Thank you and and also if I could just ask a squeeze in one more question in regard to.
On the timeline and the feasibility study is already underway and you're saying that it's too arrived sometime and in Q3 could you give us a hint as to whether or not you think that might be the beginning or end of Q3.
And it's consistent with our messaging thus far it.
Basically this is a refinement on our mid year.
So.
Remember that the last time, we spoke eight weeks ago, we were saying basically the same thing.
And as you know feasibility studies.
Our detailed and intense and we want to get this one right from the start.
So.
Sometime in Q3 as our guidance for now.
Okay, and I said that was going to be the last but I did have one other question when you and your press release indicated that a 13 metric tons of.
Battery materials had been produced or processed and and that you have now.
A banker and inventory of materials that you can send out for testing do you anticipate that those will be sufficient to satisfy potential customer interest and your own testing needs or will you need to run the pilot process, yet again before the the processing facility is finally put into place.
And next year.
It's a good question, we anticipate that these 13 tonnes are sufficient remember these are 13 product tons.
And our potential customers are looking for these kilogram at a time. So so yeah, we anticipate that there's there's plenty of inventory on there.
Excellent. Thank you.
Thank you Debra.
Once again, if you have a question. Please press Star then one.
Our next question comes from David <unk>, a private Investor. Please go ahead.
Hello, Chris Good morning.
Wonder this briefly you could.
Speak about the Coosa project in terms of the.
Mineral rights, there I'm, assuming that isn't lease and if so what is the additional debt.
Yes.
Well thanks for your question David.
And the mineral rights.
Encompass approximately 40 some thousand acres.
And on gone Nekoosa site itself.
And they are.
Basically with a single entity.
And with whom we pay annual lease payments.
And what is the term or duration of debt about lease.
And that's perpetual with five year renewals as I recollect.
Okay. So so you feel that this could go on for what 30, 50, and 70 years and feel.
You need what's going on.
Currently we anticipate and mine life of around 30 years and.
And.
That is based on the previous estimates of the ore body.
And resource as it stands.
We have a 10000 foot.
Selling program going on literally as we speak.
In order to tie in.
Other thinking around and the graphite and include the vanadium.
And I'll use and to see if they provide a little economic boost.
Now the good news for US is there's no downside on the vanadium and it's all upside.
Thank you very much.
Thank you David.
Once again to join the question queue. Please press Star then one our next question is a follow up from Debra <unk> of Crystal equity Research. Please go ahead.
Well, thank you for letting me.
And one more question there are of course in a number of estimates on how fast the graphite and market is growing and where the demand comes from I think benchmark mineral.
Has and estimate that the demand for graphite is is going to cut drew from all over the next.
And eight or nine years.
That's what bankers that UBS had a growth of seven times in that on the just a little bit longer 2030, a day, they see that time frame.
I just wondered if you have views yourself on.
What do you think is the pace of growth and your market your addressable market and it doesn't really matter. For example, if we only see the doubling of growth do you still anticipate that there would be demand for your product.
So.
And we don't necessarily develop and independent view, though.
You know as you well know from doing business with US are our estimates tend to be on the conservative side, and a 23% annual growth rate and.
And the lithium ion battery market alone.
It means that it doubles about every three years.
And with that kind of growth.
Do you know even if it's half a we are simply.
You know again facing a rapid growth.
Market for which the supply necessarily has not been developed.
I'd really encourage you and <unk>.
Any listener.
To attend the National Academy of Sciences presentation that I'm going to give on 17th this coming Monday.
And where we discuss the graphite market purely.
Not with not necessarily with the Westwater Slant because I was asked to opine on on the graphite market and I would reserve my comments.
For that.
But.
The differentiators for Westwater scrap I R.
Net simply.
There aren't very many players here and the United States and by the time, we get the mine running.
We expect to be the only fully integrated graphite supplier in the United States at all.
Notwithstanding.
On a project that may be developed and Alaska.
So you hope.
For us on the market can grow at the at the rate we expect the right.
And people like Goldman and expect that is higher.
Or even lower and it's still really good for Westwater business.
Thank you.
Our next question comes from Michael Porter of Porter, Levay and Rose. Please go ahead.
Good morning, Chris.
And this may be a little redundant on and like I said, but I was wondering if if you all have seen any kind of news out of Washington as far as what graphite is going through and be there's been some additional information on the industry out.
About some of the car dealers are going more and more into the electric cars and I was just wondering if you're hearing any noise from any of them about you know asking questions about you are testing a graphite or what have you.
So with regard to the customers with whom we are dealing now.
And as a matter of business.
Of course, and ask us to remain keep them confidential and of course, we respect that.
Every single Carmaker on Earth is building some version of an electric car now and developing their markets for the future.
Electric cars.
Adoption rates here in the United States remember.
The United States is about a 17 million and car per year market electric car adoption rates were 2% of all vehicles sold in 2019, 4%.
Of 2020, and we expect increasing sales over time.
But.
You know think of it in these terms perhaps.
And now even if we only get to 10 per cent.
And our say, even 20 per cent of electric vehicle adoption not the 100% that's on people anticipate.
<unk> per cent adoption rates.
And a five fold increase and the amount of graphite required.
And to power of that vehicle.
And it's simply not being produced right now so westwater positioning and the marketplace from a timing product and product quality standpoint could not be better.
This concludes the question and answer session I would like to turn the conference back over to Christopher Jones for any closing remarks.
Thanks, Ariel and thanks to everybody for spending part of your morning, with us and and listening to our story. We encourage you to visit our website www Westwater dot net for further information and also encourage you to have.
And the National Academy of Sciences presentation on the 17th of this month. Thanks, once again and have a great day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
Okay.
And then.
And.
[music].