Q2 2022 Westwater Resources Inc Earnings Call

Thank you for standing by this is the conference operator.

Welcome to the Westwater Resources, Inc. Second quarter, 2022 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 queue. 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 Zero I would now like to turn the conference over to Chad Potter President and CEO . Please go ahead.

Sir.

Thank you and thank you all for attending our second quarter 2002 results call.

With us today is Terence Cryan, our executive chairman of the board.

Jeff Vigil, our vice President and Chief Financial Officer, and Steve <unk>, Our Chief Financial Officer elect.

Prior to beginning I would like to congratulate Jeff vigil on his retirement from Westwater after more than nine years and the election of Steve case to Vice President Chief Financial Officer, Tom Jeff's retirement at the end of August .

Jeff's financial leadership position Westwater for financial success, and the ongoing construction and client operations, the kelsen graphite processing facility in Alabama.

We appreciate all you've done for your efforts to prepare Steve for this plan to a seamless transition.

We would like to wish you, a happy and healthy retirement, Jeff.

Slide two.

During this presentation are forward looking statements, we will be making are based on management's judgment, including but not limited to the cost and scheduled projections related to the Pelican graph I plant and the Coosa Coosa graphite deposit.

These statements are subject to certain risks uncertainties of which a description can be found on slide two within this presentation. Our 10-K for 2021 and our other SEC filings actual results may differ materially from what may be discussed today.

On to slide three.

Why westwater as an investment.

Westwater as an energy technology company focused on producing advanced graphite materials in the United States using our patent pending purification process.

We're currently constructing phase one of our kelsen graphite processing plant, which has a projected total capital cost of $202 million.

We also hold mineral rights to approximately 41900 acres across the Alabama, graphite belt, which we call our Coosa graphite project.

We chose to develop our graphite processing plant first and our Coosa deposit second we believe there are a number of strategic advantages to this approach.

First it lowers the capital cost and gets us the revenue and positive cash flow sooner.

As many public sources have shown.

There's increasing supply shortage process graphite material for electric vehicles and energy storage markets.

With projections that the supply shortage will continue for the foreseeable future.

This approach along with securing our supply of natural graphite flake from a non Chinese source will allow us to take advantage of this growing market, while de risking the permitting process and the preparation of the coosa deposit being brought online in 2028.

Turning to slide four.

Since the beginning of our project There've been no recordable safety incidents by contractors for Westwater team members.

There is nothing more important than safety of our team members and contractors at Westwater and the protection of the environment, where we live and operate.

This is a significant accomplishment and I would like to thank all of our team members and contract team members to continue to keep safety their number one priority.

During the second quarter.

Earth work and site grading continued and was completed in July with 97000 cubic yards mood.

Construction activity during the second quarter also included the mobilization of our general contractor receipt of the first components of our long lead time equipment in the beginning of the underground utilities.

Foundations and the manufacturing of plant buildings.

Also in June the company received its air permit from the Alabama Department of Environmental management now has all necessary permits to continue and complete the construction of phase one of the kelsen grabbed by plant.

In regards to our Coosa graphite deposit in April we completed our exploration drilling program and expect our resource model by the end of the year.

Now I'd like to turn it over to our Chief Financial Officer elect Mr. Steve case.

Thank you Chad and good morning, everyone before we discuss our capital position I want to thank Jeff vigil.

His guidance and Mentorship during my time at Westwater has been instrumental.

Jeff I will Miss working with you every day.

You have not only been a model of professionalism and integrity, but an extraordinary example of servant leadership I wish you and Julie a long and healthy retirement.

Now, let's look at our capital position on slide five.

Our closing share price on Tuesday August 9th well, the dollar 36, and with approximately $47 2 million shares outstanding which is unchanged since our first quarter investor call on May 11th.

Our market capitalization stands at approximately approximately $64 million and as of August 9th our three months average daily trading volume was approximately 557000 shares per day.

Our share price began the second quarter at $1 92 and ended at a dollar away.

We believe in the current market environment investors have taken a more cautious approach to pre revenue companies and those companies in need of additional funding in an environment marked by rising rates.

Westwater however.

Finished the second quarter with a cash balance of $109 million and a working capital balance of approximately $103 million.

During the second quarter, we received net cash proceeds of 9 million related to stock sales using our ATM facility.

97% of the cash received from stock sales during the second quarter related to trades that were executed at the end of the first quarter, but did not settle and we did not receive the related cash proceeds until April .

The company has not been active with its ATM facility since the first week of April .

Our working capital balance and zero debt continue to support the construction of phase one of the Kelly tune graphite processing plant.

Since beginning construction of phase one we have incurred $30 million of the estimated total cost of $202 million.

Management continues to aggressively seek out additional or alternative sources of capital funding.

Which potentially could include more traditional project level debt off take agreements loans or grants or strategic partner or a combination thereof.

Management is having discussions with multiple third parties and subject to capital market availability, we are looking to raise the additional capital needed by the end of the year.

Turning to the financial summary on slide six net cash used in all operating activities was approximately $6 million for the first six months of 2022 as compared with approximately $9 million in the first half of 2021.

The $3 million decrease in cash used in operations was primarily due to reduced product development expenses and costs related to our arbitration against the Republic of Turkey.

The cash used in investing activities for the first six months of 2022 totaled approximately 25 million and was related to the ongoing construction of phase one of the Kelly to graphite processing plant.

Cash provided by financing activities for the first six months of 2022.

<unk> totaled $24 5 million and is related to the already mentioned stock sales on our a T M.

Which as mentioned has not been active since the first week of April .

Product development costs decreased $1 7 million during the second quarter compared to the same quarter in 2020 one.

Product development costs for the second quarter of 2022.

Related to continued product development and optimization costs.

Second quarter, 2021 product development costs related to our definitive feasibility study for phase one of the colleagues in plant and the Companys pilot program. Both completed in the second half of 2021.

We continue to run our pilot program as needed however to produce additional samples of our battery grade products for shipment to an evaluation by potential customers.

General and administrative expenses during the second quarter increased by approximately 400000 compared to the same quarter in 2021 the.

The increase quarter over quarter is due primarily to higher payroll and personnel costs as the company continues to build out his team and Kelly to in Alabama.

Net loss for the second quarter of 2022 was $3 2 million or seven cents per share compared to a net loss of $3 5 million or 11 cents per share for the second quarter of 2021.

The 300000 reduction in net loss was due primarily to lower product development costs and lower exploration expenses as we completed our drilling program in April of 2022.

These decreases were partially offset by the higher G&A expense expenses already mentioned.

And the absence of the unrealized gain recorded in the second quarter of 2021 related to equity securities held by Westwater that we received in 2020 with the final sale of our former uranium business. We subsequently sold those equity securities for cash proceeds in the fourth quarter of 2020 one.

Now turning to slide seven.

We continue to advance phase one of the kelsen graphite processing plant as previously mentioned since its inception Westwater has incurred $30 million of the 202 million estimated cost of phase one.

Also as mentioned previously in April we completed exploration drilling at the Coosa deposit the drilling program was executed on 4000 acres of the approximately 41900 acres at the Coosa deposit.

We continue to work to ensure adequate financial liquidity and at June 30, 2022 we had a cash balance of $109 million and no debt.

With that I'll turn it back to you Chad.

Yes.

Thank you Steve.

For those joining us today that are new to Westwater.

We've included additional information on Westwater graphite market, our team and our core values in the appendix to this presentation.

The team and I will now take questions that you may have.

Operator back to you for questions and thank you very much.

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 a tone of acknowledging your request.

If you are using a speakerphone please pick up your handset before pressing any keys to.

To withdraw your question. Please press Star then two.

Once again to join the question queue. Please press Star then one now.

Once more to join the question queue. Please press Star then one at this time.

Our first question comes from Dmitry Silverstein of water Tower Research. Please go ahead.

Good morning, gentlemen, thank you for taking my call quick question in your press release, you talked about executing a letter of intent with a global manufacturer of consumer batteries. So I'm. Assuming this is not for the EV battery market, but more for the batteries could up to double or triple a do whatever.

Go into consumer electronics.

Is that correct and b.

As the manufacturer waiting for you to submit samples from your sort of operating Pelican plant or will they be validating the samples produced at your pilot plant.

Good morning, Dmitry. This is Terence cryan.

You are you are correct in terms of your first question.

This is a global consumer battery and.

Cheat.

And as regards our.

Our ongoing testing and qualification process we have.

Provided pilot plant samples to that entity.

As I think everyone on this call probably knows the qualification process for us.

Battery grade graphite.

As a.

Technical and lengthy one.

And we look forward to continuing to go through that qualification.

Our process not only with this particular manufacturer, but we're in active.

Discussions with a fairly large number of potential customers.

Oh, Okay. Terry. Thank you for that just a quick follow up on that can you provide any or are there any details to provide as far as what volumes. They are the best manufacturers looking for are for you guys to commit.

Dmitry, where we're under a Nondisclosure agreement with this particular party. So we are not at this point in a position to provide additional information.

It is our overall goal.

As we work through the construction process for it so that we will find customers for all of our.

But in advance of commissioning the plant.

Got you got you. Thank you.

Doug.

Switching gears a little bit.

Quite a bit of work in the second quarter I can tell it to apply them.

You've described in the slides in your presentation, what are some of the things that youre looking to do the third quarter in other words what.

You're working on underground utilities are starting to put up walls.

What should we expect to hear from you.

Three months from now when they report on the progress that you've made a plan.

So we will be providing regular updates as part of our quarterly reporting in terms of progress you know Ed Kelly too.

As Mr. Potter mentioned, we also are in the process of developing the resource model for our Coosa graphite deposit and we will have more to say about that in.

In the balance of the year.

Okay Fair enough and then last question if I may just a quick update you mentioned that the constant churn for sure.

The National Court.

All of them.

Back to Turkey.

You know a rationalization of your assets there.

Any updates or anything you want to share as far as your ability to recoup some of those costs anything going on in that front.

So that arbitration process.

<unk> is complete.

And we are waiting for a response.

We are hopeful that we will get a response in the coming months, but that process in that timeline is somewhat outside of our control.

But I can assure you as soon as we do have a result.

We'll announce it.

Fair enough. Thank you gentlemen.

Our next question comes from Debra <unk> of Crystal equity Research. Please go ahead.

Good morning, and thank you for taking my questions.

This might be a bit redundant I was unfortunately, a little bit disconnected during the earlier caller's questions about the letter of intent and I wondered if you could.

Maybe give us a little bit more color on this particular manufacturer.

Have they given you any indication of what kind of volumes that they would be ultimately looking for once you begin production and killington.

Good morning, Deborah this is Terence cryan.

Thanks very much for your question.

As I mentioned to Dmitry.

Earlier, we are under a nondisclosure agreement with this particular manufacturer.

So unfortunately I'm not in a position where I can provide you with any guidance as regards to volume at this time.

Okay Fair enough and then also from.

From the description in your press release, it sounds like they plan on doing some more testing and qualification work.

You're going to be working with them as they go along.

But I wondered if you could also maybe give us some hints as to how much testing they've already done they must have done something I would think in order to determine that they want to work with you and and if you could just maybe give us a description of what has transpired so far.

What led up to this letter of intent or in other words.

Right, well I'll try to be as helpful. As I can.

We are currently working not only with this manufacturer with them, but with a broad range of potential customers, who have received samples from our pilot plant that pilot plant continues to operate and we continue to produce samples, which in some cases are produced to the.

Specific specifications of a given customer so we're having a broad range of conversations and going through the testing and qualification process with that with a broad range of potential customers.

And as I mentioned earlier, our goal is to be in a position that by the end of our construction phase and as we are commissioning the gelatin plant.

We have customers for all of the output of our intelligent.

So you know as we get closer to that I know, we will have more to say.

But we we are very active at the present time with a whole range of potential customers.

So is that a yes that this that this particular manufacturer already has done some testing.

Yes.

Okay, but at least we got that far and then I wanted to ask another question. If you've mentioned this in the past.

Possibility of participating in a funding opportunity that was announced in may of this year by the department of energy. It was pursuant to some legislation and action on the part of the government the federal government earlier this year.

And it is of course to support domestic production of of critical materials and you had suggested that there was some advisors that had been hired or are that it would be helping them along these lines and I I wondered if you could give us an update on how that particular funding.

Source might look for you as it.

Is there a potential to use it for financing the current construction phase is it only for working capital once you get into production or.

And also have you learned whether or not it it favors domestic producers or companies that sell to domestic end users.

Do you ever that is a terrific question and one that.

Really covers a lot of areas that we're looking for eagerly awaiting.

Strong.

The D O E on.

We are having all of the conversations that you would expect us you're having relative to other sources.

Potential funding.

Not only for phase one of Kelly, Tim but beyond.

You know, it's it's our practice not to speculate about what those sources of funding might or could be in advance of receiving them. So that's.

That's about as far as I can go at the present time.

Okay. So.

I take it then that this funding opportunity that was announced just in May of course hasn't really got up and running yet.

It doesn't have an application process set yet or are they still working on that.

Our understanding is there with regard to the D O E.

Grant.

Program that they're targeting.

An announcement with regards to awards for that program in October of this year.

Okay, but you are not ready to confirm whether or not you've applied.

Applied.

We're active on a whole bunch of different.

Funding opportunities Debra is as Steve mentioned as you know our goal is to achieve the lowest cost of capital available.

Available to complete skeleton.

And you know once we have successfully done that will.

We'll be anxious to share that news with you.

Okay and then also at this kind of follows along I wondered is have our investors who've asked questions about whether or not you know.

This initial phase when you're purchasing grab.

Graphite on the open market, where you have a supply relationship and it's it's a third party whether or not that has any impact on.

Your production as quote a domestic producer is is simply the refinement process in the United States enough for example to qualify your your production as a domestic domestically produced graphite say as far as the department of.

Defense or is concerned or or other commercial customers, who might be particularly sensitive to that quote domestic U S source.

So with regard to that question Deborah.

We can look and draw parallels to so other industries and you could think about the automotive industry where.

There's qualifications you know based on the amount of U S content.

I'd also point to the fact that we think that as we go through the process of taking natural flake graphite.

And producing active Android material.

There's about a seven to nine times, the how you increase that occurs.

So we believe.

During the period of time that we're going to be using a third party.

All sorts of graphite in advance of bringing.

Our cruiser deposits online, we will still qualify as.

Nate in the USA domestic tons.

Okay very good and maybe just another follow up because this was a specific question that had been sent to me buy in and buy an investor as a shareholder who wondered whether or not the pending legislation. The inflation reduction act, which does have quite a bit of funding related to our renewable.

Energy and electric vehicles in particular, whether or not that legislation is expected to make any changes and how the you know the federal government defines what's domestic and what's not and domestic production of graphite in particular.

So as you know that pending legislation has not been passed by the house or signed by President there are still potentially changes that could occur to that.

So we're you know we're actively awaiting.

The final version of that Bill we are cheering for the from the sidelines.

You know, we're obviously hopeful that that will provide additional potential.

Potential government funding to support our critical materials like advanced graphite so.

I think you know we're all watching this eagerly anticipating additional funding availability.

Okay. Your comment just made me think of another question.

It is still of course pending and I'm not even certain that all the people in Congress have had a chance to read it but as it's been discussed so far have you been are.

Made aware of of anything in particular.

That would benefit your company in particular for example, does it offer funding for you or your customers or or for end users say consumers. How do you think it might be beneficial to westwater.

Do you ever you've got great questions and I I think at this point given that the legislation does not in final form and still pending I think we're going to defer any any comment on that obviously.

There is.

No reason to believe this is going to be beneficial not only for for us, but for as you point out our potential customers. So you know we're gonna be watching this closely.

Alright, very good thank you.

I'll get back into the queue and and just as a note I had a little difficulty getting into to the call not in terms of getting into the call, but in terms of asking questions by using a cell phone and so if you find that there are not very many questions that could be because people are having trouble.

Getting into the queue for questions because they are dialing from a cell phone.

Yeah.

Alright, well, thanks again for joining us.

Our next question comes from Michael Porter of Porter, Levay and Rose. Please go ahead.

Thank you Chad just.

Just to take a minute out there are a lot of people who never seen properties.

Can you sort of discuss or give us.

An overview of what's going on down there.

You know on what you've accomplished and what are you looking forward to do over the next quarter.

Sure Michael Thanks for your question I appreciate that.

As you know construction at the plant continues.

In April we.

Purchased two largest existing buildings and built them out at the plant site.

Completed all the earthwork insight grading and moved approximately 97000 cubic yards of dirt.

We started all of our underground utilities.

Building fan Dallas foundations, and manufacturing manufacturing of the buildings as well.

June of this year, we've received all our permits and now have all all necessary permits to continue our construction.

As one of the plant and Kelly to them.

Yeah.

And we've also have our wastewater permit.

That's in process and we expect to have that completed by.

First quarter of next year.

The management team is really hyper focused on managing impact our schedule and budget due to continued global supply chain issues.

What we're expecting in the next quarter.

Is continue with the underground utilities and foundations, but also the slab packages and in the second half of this year.

Erection packages as well.

Thank you can I. Please ask you one more question. It was brought up earlier about the pilot plant.

Can you give us a little color as to what.

What the customers are requiring of you know the potential customers after they've had their initial samples.

Are you doing with it what's the plant trying to do with it and it's starting to give us a little bit more color on that.

Okay.

Sure I think it is.

Mr try and as said earlier, we're still aggressively marketing to potential customers.

A number of customers who received our process graph I continue to to request.

Based off their specification for their purposes.

In addition, new customers potential new customers are receiving our samples for their testing as well our plant continues to process graphite on AR when requested basis from our sales team.

So we're continuing to running it on a as needed basis.

Thank you very much.

Yeah.

Thank you Mike.

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

Thank you so in closing I'd like to express our thanks and appreciation of the Westwater Board.

Jeff Vigil.

It's exemplary service as CFO these past nine years.

I'd also like to thank all our shareholders for their continued support.

As we execute on our strategic plan to become the Premier battery grade graphite producer in the United States.

Thanks for joining us today, and we look forward to being in regular contact.

Good day.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

[music].

Okay.

[music].

Yeah.

Okay.

[music].

Okay.

Yeah.

[music].

Okay.

Yeah.

Yeah.

[music].

Yeah.

Yeah.

[music].

Okay.

[music].

Yeah.

[music].

Okay.

Okay.

[music].