Q4 2022 Westwater Resources Inc Earnings Call
Thank you for standing by this is the conference operator welcome.
Welcome to the Westwater Resources, Inc. Full year 2022 results and business update conference call.
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I would now like to turn the conference over to Frank Bakker, President and CEO .
Please go ahead Sir.
Thank you moderator and thanks to those attending our 2000, thanks to year end business update and results cool.
I'm excited to lead the company and to add to his first any school she is becoming the CEO virtual water resources.
With me today, you said in Australia.
Second as chairman of the Board and Steve Davis, Our Chief Financial Officer.
During this presentation are forward looking statements we make.
Based on management's judgments, including but not limited to future demand and price forecast.
Hey, Julien course, predictions and economic expectations related to the Covington plant.
It goes out today, if I could push it thank.
Capital raising activities. These and other similar statements are subject to certain risks and uncertainties of which a description can be found on slide two in this presentation.
And you know 10-K for 2022 and our other SEC filings. Please read our cautionary statement.
Actual results may differ materially from what is discussed today.
Slide three.
Phase one of our kellison processing plant has been ongoing for over a year.
When completed.
Peloton criticized processing plants, who will provide an old material.
City to support the energy transition.
Chris from potential customers is strong and samples continued to be requested.
Suddenly westwater resources entered into an agreement.
Electric vehicle battery producer.
Under the agreement the two companies will work together to ensure that she is P. G. I expect it to be produced at our Kansas plant can be used as a high performance and nodes for their batteries.
Subject to those efforts.
Terms and conditions yet to be negotiated in the future of agreement.
The agreement allows for the sale of potentially all anode material from our current and planned for those batteries.
This is another sickness.
<unk> no good business and our engagement with potential customers and we are anticipating making a joint announcements with all partners later this month.
At that time, we expect to be in position to provide further details.
He also holds mineral rights to approximately 42000 acres across the Alabama market built.
Once you know operations the skeleton processing plants and it goes out the bushes represents the first fully vertically integrated domestic battery company in the U S.
We believe this will provide significant competitive advantages keeping the passing of the inflation reduction act in 2022.
Its domestic content requirements for electric vehicle battery materials.
Turning to slide four and.
In response to growing demand and customer feedback to increase our planned production capacity. We are pleased to announce that we have completed an optimization study of the skeleton graphite processing plants, which we believe will significantly improve the economics of the projects.
As a result, we now expect to double our true put capacity in phase one to approximately 16000 metric tons per annum and more than doubling our estimated she is P. G production to 7500 metric tons per year.
The higher throughput, resulting in an expected increase in your.
Estimated predicts and P fees compared to the original DFS.
Over three times to $470 million.
And an increase in your estimated cumulative pre tax cash flow to $1 $9 billion and.
Anthony increase estimated pretax of.
65% to 24, 7%.
We used the optimization, we now estimate the total cost of phase one to be approximately $271 million.
We expect to begin testing and commissioning of phase one in late 2023, and first production to occur in the first half of 2024 subject to closing the additional funding to complete construction.
<unk>, we expect to spend the additional capital necessary for the phase one optimization in 2024, and I'm targeting completion of this optimization and increasing the throughput in the second half of 2024.
Slide five we also have incorporated the optimization of phase two at the pre feasibility level.
Increasing the plan she PGM production to approximately $40 five on that metric tons per year.
Nearly tripling the expected pretax NPV to $2 $2 billion and increasing the estimated cumulative pretax cash flow to temper and $3 billion and the estimated IRR to 36, 3%.
Total combined cost of phase one and phase two is currently estimated at $736 million. We plan to begin a definitely a feasibility study on the phase two expansion in 2023 and will provide an update once completed.
Turning to slide six for the construction progress update she.
Since the beginning of construction at our Collins in graphite project in late 2021, we have had shadow recordable safety incidents by our contractors and Restful works teenage dish is a significant accomplishment safety is and will continue to be our number one core value as well as the protection.
And finally, where we live and operate.
During 2022, we completed the work to building foundations and the majority of the underground utilities significant progress has been made on the buildings two of the major buildings have close to being finished and the other two buildings. We competed in March April of this year.
Long lead equipment starts to arrive at site and we will start putting the equipment in place in March of this year.
Regarding our goes Oh, sorry to push it on slide seven.
In April 2022, we completed our exploration drilling program and completed our geological model and published a technical report in the fourth quarter, which identified about $3 8 million short tons of graphite.
Enough to supply the estimated feedstock requirements for a telephone graphite processing plant at over 45 years, It's worth noting that technical report was completed based on drilling approximately 4100 acres of the approximately $42 an acre to which we hold many.
All right.
We continue to expect the crews had to push it to come online by the end of 2028 subject to its own designated feasibility study obtaining the required permits and financing.
I am extremely proud of the wash water team how contracted the dedication and hard work of all involved to make Westwater resources successful.
Now I would like to turn it over to our Chief Financial Officer, Mr. Steve Gates.
Thank you Frank and good morning, everyone.
Slide eight west.
Westwater finished the year with a cash balance of $75 2 million and no debt our strong financial position has allowed us to continue to advance our graphite business.
Including the construction of phase one of the Kellogg's in graphite processing plant.
Regarding financing we are pleased to announce that we have signed a nonbinding nonexclusive indicative term sheet for $150 million of private debt, which will cover the balance of the current estimated phase one capital requirements, we're targeting to close on this transaction in the second quarter of this year.
Since the beginning construction cash expenditures totaled approximately $55 million related to the phase one construction and we estimate approximately $260 million of cash spend remaining of the now estimated total cost of 271 million.
Which includes the phase one optimization.
Turning to the financial summary on slide nine detailed discussion of these items is included in our recently filed Form 10-K as well as our 2022 year end press release.
Cash used in all operating activities for 2022 was approximately $13 2 million.
As compared with $16 9 million for 2021.
The $3 7 million decrease in cash used for operations was primarily due to reduced product development expenses and lower costs related to our arbitration against the Republic of Turkey.
Those decreases were offset partially by the gain recognized on the sale of equity securities in 2021, and the purchase of feedstock inventory in the fourth quarter I head up beginning testing and commissioning later this year and to produce additional product samples for our customers.
Cash used in investing activities for 2022 totaled $52 8 million and was related to the ongoing construction of phase one of the Kelly Eaton graphite processing plant.
As mentioned previously product development cost decreased $4 8 million during the current year in 2020, one we incurred costs to complete our definitive feasibility study for phase one and our pilot program.
We continue to operate our pilot program to provide additional samples of our battery grade products for shipment to an evaluation by potential customers.
Lastly, net loss for 2022 was $11 1 million or 25 per share compared to a net loss of $16 1 million or <unk> 49 per share in 2020 one.
The 5 million reduction in net loss was due primarily to lower product development and arbitration costs and higher interest income earned on our cash balances.
These were partially offset by higher G&A expenses as we continue to build out our team and the absence of the gain recognized in the fourth quarter of 2021 related to equity securities held by Westwater that we received in 2020 with the final sale of our former uranium business.
With that I'll turn the call back to you operator for questions.
Yeah.
Thank you we will now begin the question answer session.
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The first question comes from Debra <unk> with Crystal equity research.
Please go ahead. Thank you all.
Thank you operator, Oh first let me offer congratulations to all think Barker for possession I wish you well in your new role I first off wanted to ask about the optimization plan that you disclosed.
Today, Oh, what what triggered this study.
To optimize the plant what was the impetus to make some tweaks in pitches to the to the process.
Yeah. Thank you David for the question.
And so I think there are two main reasons. The first reason was that there is an increased demand of our ashish ghia material M D.
Let's take market in the U S.
And the second reason is that.
If you look at the eye it off before we made this optimization and offered them optimization.
Our increased from 15% to close to 25%. So that's also the.
The other reason why we did the optimization.
And it's good to note that the only optimisation.
You didn't change the technology actually we only.
Rerouted the process flows and he moved it bottlenecks in that facility.
Excellent that is actually was my next question is what is the means of the optimization.
If it's just the process flows are you still going to be working with the same set of equipment that you had previously planned on using do you have to add equipment is that part of the cost increase.
Yes, you're correct. So we only can you get out of the process flow process flows.
But we're going to use the existing equipment.
And we need to add additional equipment.
To do what he says capacity that's correct.
I never wanted to move on to the cost increase you mentioned in the the annual filing that the added costs really arise from in part the optimization.
Changes as well as there was a hint that the delays and cost overruns and then maybe some price increases due to inflation I just wondered if you could give us a little bit of color on.
The relative contribution of each of those three sources are the cost increase was principally the optimization.
Glen or or you know what part of it did the delays and cost overruns play.
Yeah, I think it's mainly the optimization project.
That has driven.
Given the increase and of course, we have the optimization project.
And of course, what we announced is that if you want to start commissioning end of this year.
Dan stopped producing immaterial in the first half of next year.
<unk> continue to increase production in the second half. So we also have a little bit longer duty Asia to get to full capacity related to this optimization.
And that also drives cost when you boil it takes longer.
You have more course of course.
Certainly that can you confirm that the project is still on its original schedule or has it been pushed back somewhat.
It's a in line with what was announced in the law school. So we start commissioning end of this year.
Uh huh.
Well one building you have all the steel in the equipment is arriving as we speak. So the building is finished so we're gonna start setting does equipment W stop testing and commissioning end of this year.
Excellent no.
I noted also that with the increase in the amount of C. P. S. G production that is possible through the C. P. S. G throughput that's going to be possible with the optimization plan I just wanted to confirm what the planned product mix is UN report also mentions a S. P G filings.
Spiracle purified graphite fines and I wonder why it was P. M G in the new mix under the optimization plan.
Yeah. So we have the option actually two to also make purified fines, but it really depends on the economics of a if you're going to do it because.
Because most likely to see SPG product will have a higher margin. So we'll focus on the <unk> production.
Okay.
And I don't mean to monopolize the call I just have one last question. This is in regard to the new development agreement that you announced today with a a battery manufacturer that's producing EV batteries.
And Andy and I noted that you can't name them I understand that.
This entity been discussed is it among the five L. O wise that have been previously announced or is it an entirely new entity that you've not discussed before in any press release or conference call.
Yeah, we're planning to make a joint announcements partner later this month and at that time, if you have any depreciation to provide further details.
Did those details include a name.
Yes, Hey.
It will include a name that's great.
Alright, very good I do have additional questions, but I'm going to a bar and just get back in the queue and allow others to ask additional questions. Thank you for your answers I appreciate it.
Okay.
The next question comes from Dmitry Silverstein with water Tower research.
Please go ahead.
Good morning, gentlemen, and thank you for taking my call. Congratulations on the very positive developments here with both increased production of phase, one and phase two and the signing of the agreement with a tier one a battery manufacturer just a couple of questions to clarify.
When you talk about this new agreement.
The agreement.
Your potential customer taking potentially all of C. S B G.
But by all do you mean, the 3700 a month.
Tons that was originally targeted as phase one production or the 7500 metric tons.
That will be the C. SPG production run rate once you complete the improvements by the end of 'twenty four.
Yeah. Those those details will be provided in the joint announcement that you the lawmakers our partner.
Okay fair enough, but I mean, okay. So at least 3700 metric tons.
And then maybe more.
It sounds like okay.
Secondly on the.
On the increase in the production of a phase one so it sounds like your phase one basically is now going to be produce as much material or process by which you will produce as much material as you originally targeted for your phase two so you're more than double that you mentioned in your phase one production yep.
Looked like a significantly higher incremental cost.
Versus the original budget.
Over 200 million. So I guess the question is.
If it's.
Hum.
Say easy, but if but if you could increase if you could if you could double the production.
Adding a little bit more capex for phase one.
<unk>.
Can you phase two become much bigger if needed.
Given what we kind of learned about phase one and how much production capacity can increase by adding a little bit more capital.
Yes, I think Youre correct because phase two is if you look at the eye. It at a phase two what we calculate it it's around 45, 56%.
And the capacity in phase two with total capacity of the facility will be 45 metric tons per year.
And.
The approach we took as a modular approach.
So for a lot of different units into facility. It's a copy paste that as one unit that we need to optimize when we go to phase two but for the big part of the facility. It's modular so it's really like a copy paste so make slide.
Pretty easy actually.
Okay. So if it's possible that that for not much more than $736 million, which youre looking to spud for phase one and phase two well you can actually you know.
You have the ability in your current footprint to increase the phase II production if demand continues to remain strong.
And Oh.
Customer interest continues to remain strong.
Yes, that's correct, yes, we have enough footprint over there to to increase our capacity.
Okay, Great and then just one final question just make sure I understand so you complete the construction construction of testing and ramp up by the end of 'twenty three.
You get into production.
You're getting a 44 and then you talk about sort of finishing the optimization by the August 24. So does that mean that your initial production will be kind of a at the the 15000 metric ton run rate.
I'm, sorry, 7500 metric ton run rate.
By the end of 'twenty 'twenty, four you're going to get to 60000 metric ton run rate is that the way to think about it.
Yeah. So we're gonna add continue well, we're gonna start to commissioning.
End of this year the commissioning effort will continue in the beginning of next year 2024.
Then during the first half they'll start producing graphite.
And then slowly over the year will ramp up to full capacity.
Okay. Okay. That's.
That's all the questions I have thank you for your time.
Okay. Thank you.
And the next question comes from Debra <unk> with Crystal equity research.
Go ahead.
Oh, Thank you I didn't expect to come around on the Q quite so quickly. This question might be more for Steve case, If you will Steve you.
You talked about the financing agreement or the the non binding term sheet and I just wondered if you could give us a little bit of color on how far along you are in these negotiations have you gotten enough detail. So that you for example, Ken.
Model and interest rate is fixed is it variable have you discussed repayment terms and do you have an idea then of what the.
The cash flow impact would be of the interest and principal repayments.
Yes, Debra so it is an indicative term sheet. So there are those.
Those aspects and that as far as a coupon rate of repayment terms, but all of that is still subject to going through the process as you're probably well aware until we get to closing and negotiating kind of the final terms and seeing if pricing moves. It also while we do have that and have modeled that in we're not at a in a position yet until.
We actually signed the definitive agreement I'm closing the transaction to communicate that to the market.
But we will do so when Oklahoma.
So certainly and when the you mentioned an investment bankers involved are they intending to make the loan themselves are they acting as an intermediary and putting a syndicate together you just kind of clarify what their role is.
Yeah, I don't I don't believe we ever said that it's in an investment bank, but this is a third party that is key.
Closed billions of dollars of transactions over the past couple of decades within the energy sector of that and that's who we're working with and going through the process to close and so there'll be a lot more to update once we once were able to close this.
So they're making alone themselves this third party.
Well remains to be seen them when we get to the final negotiation on whether it ends up being a single party or a couple of parties involved and so we're working through that right. Okay.
Okay.
It also didn't notice that our the final decision.
One was made by the arbitration panel in regard to the Turkey, a dispute and that they awarded Westwater 1.3 million I wondered if you could maybe describe to us what will be.
What is it that you're looking for that makes it.
You know certain more certainty more probable than not that you're going to get the money and you can begin to reflect this decision on the books I suppose the earliest that we could see anything would be in March but if you could just kind of walk us through what to expect next in that regard.
Yeah.
Deborah Deborah Islands go ahead Terry.
Thanks for your question.
Appreciate that.
The decision by the <unk>.
Arbitration Tribunal was only announced on Friday.
And so I think it's a little early for us to be definitive about that.
And I think that you know while we're you know we're pleased that the truck.
In our favor on the merits, obviously, we're disappointed in the.
Sure.
But I would note that the decision of the tribunal is binding and non appealable.
Yes understood. It's that's what arbitration is all about and then this last final question is again for Frank.
I Wonder if you could maybe go back to the time line, that's been outlined for the Coosa graphite.
Graphite deposits, it's been pushed out now two to 2028 are we sort of jump out at in two year increments with this.
Could you maybe sort of give us an idea of what is the strategic thinking and pushing it out another two years I'm not sure. If this was done recently or a couple of months ago, but but it has been pushed out to 228, what's the driving strategy behind that that timeline. If you will and then that is my last question and I do want to thank all of you.
For all of your answers.
Yeah. Thank you.
Yeah. So the timeline has not been pushed out so there's always been $2 28 for the mine to be operational.
Shall we continue we have a program in place to get all the permits in place to do all the research all the all the things you need it to get it operational in 2028.
And if there are no further questions. This concludes the question answer session.
I would like to turn the conference back over to Frank Barker for any closing remarks.
Thank you.
I think we've made a tremendous amount of progress over the last couple of months.
Without production capacity of phase, one and could you just our phase two capacity to 40500 metric ton per year.
By doing this we improved project economics significantly next.
An extra dish, we executed a term sheet for the phase one capital requirements. So I think the future looks bright for Westwater resources.
I want to thank everybody for their attention and looking forward to speaking to you on the next cool. Thank you.
This concludes today's conference call you may disconnect your lines. Thank you.
You for participating and have a pleasant day.
Mhm.
Okay.
[music].
Okay.