Q2 2023 Westwater Resources Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Westwater Resources, Inc. Second quarter 2023, well 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 Frank Bakker, President and CEO .
Please go ahead Sir.
Thank you moderator.
Thanks to those attending our second quarter 2023 business update and as old School.
Today's Terence cryan.
It's a chairman of the board.
<unk>, our chief Financial Officer.
During this presentation are forward looking statements. We make are based on management's judgment, including but not limited to future gratify demands and price forecasts schedule and cost projections and economic expectations related to the talented plant the coosa graphite bullshit.
Bush at capital raising activities.
Florida, and the estimated timing of those activities.
These and other similar statements are subject to certain risks and uncertainties all of which are description can be found on slide two.
Presentation.
And in our 10-K for 2022 and our other SEC filings.
Please read our cautionary statements and realize that actual results may differ materially from what is discussed today.
Freshwater as an energy technology company focused on producing advanced natural graphite materials in the United States, using our proprietary technology, including our patent pending certification process.
Slide four.
We remain focused on becoming the U S tourist based vertically integrated natural graphite anode supplier.
Also we continue to believe that the location of our Kelantan plant in East Central Alabama Places our operations in the heart of the growing U S. U P. Betsy market when completed the kellison gratified processing plant will provide material necessary to support the domestic energy transfer.
Sure.
Recently, the EPA announced new emission targets, which is expected to increase critical material demand for electric vehicles by 78% over the next nine years, According to benchmark mineral intelligence.
Many auto manufacturers have announced commitments to either increase the number of electric vehicles produced or completely rectified that lineup.
Turning to slide five.
As a result of a government legislation in the U S and around the globe and increased planned production of electrical vehicles global demand for lithium ion batteries is expected to grow at a compounded annual rate.
Double digits to 2035 demand grow for lithium ion batteries.
Also expected to drive increased demand for Westwater as primary products.
Coated spherical purified graphite or she SPD.
The demand drove North America four she SPG is expected to grow to approximately 200000 tons per year by two dozen Fuji and to over 400000 tons by 2035.
Gallons a plant that's under construction in a prime location in 15 planned what existing factories isn't a one day delivery of the plant.
On slide six illustrates that the borders of graphite and a lithium ion battery assets accounts for approximately 50% of the critical minerals by weight.
A typical electrical vehicle has around on the 75 to 210 pounds of graphite currently U S is 100% dependent on foreign imports of battery graphite products.
Slide seven the growing demand for lithium ion batteries, the government support for the energy transition.
And the need to have good supply of key materials has led the U S government to designate you get aside as a critical minerals.
As we have mentioned previously when she is P. D is produced in the U S. It helps battery and EV manufacturers meet the domestic content requirements contained in inflation reduction.
I had a has been and continues to be an important catalyst to our engagement with potential customers because of the domestic content requirement.
She is reservoir with resecure to treat stroke off of graphite concentrate from Shire resources, non Chinese source and we plan to perform 100% of the conversion process here domestically.
Expect Ashish PGE produced at Clinton will be I already compliant.
Moving to slide eight.
Continue to focus on our affiliate proposition and believe reservoir that is well positioned as a future domestic chores.
Got a compliance he is P. G. The first market mover advantages to become the first vertically integrated natural graphite project based on the present in the U S.
In addition, we continue our ESG focus, including environmental stewardship commitment to follow S. A S b standards and to paid vacation process. It doesn't plan to use hydrofluoric acid.
Our business plan also includes the potential for significant future expansion of our business both on the telecom side and of course the bullshit.
Turning to slide nine we.
We took a slightly different approach than other companies did mineral deposits by developing okay. That's like processing plant finished our planning our couchettes bullshit second.
And we believe that a number of strategic advantages to this approach first it gets us to a revenue push this cash flow sooner.
The conversion of gratified flake concentrate into CHP D. It yourself.
So you multiply out of approximately nine times.
Second this approach along with securing our supply of natural gas hedged flake.
Chinese source will allow us to take near term advantage of the growing market for battery materials.
Onto slide 10.
Earlier in the year, we announced a joint development agreement with scale.
A tier one global battery manufacturer. That's currently operates two iffy battery plants in Georgia.
And is building three additional effete battery plants in the U S.
It's blue Oval joint venture with Ford.
Additionally, <unk> has announced plans to build a 5 billion if he battery manufacturing facility in Georgia or as one day.
Ruth with SQL Honda J D. H continues and if all this collaboration preparation and testing of additional samples and ongoing product development.
Feedback we have received regarding the latest simple is elevated by S field was extremely positive.
Some companies get stuck in basic market battery testing they are small sample sizes, sometimes require and as many as 10 sample iterations before they can progress to large format cell testing.
Water was able to move to move to large format self testing. This S. Gill I'll say a few iterations.
Not only the result of the positive collaboration with the R&D team at scale.
But also the ability for westwater highly skilled technical team.
As a result of the significant progress made on the J D. E. S. Keel Westwater are currently negotiating terms for an off take agreement to sell T. H P. G from the gelatin plant.
Slide 11, we continue our engagement with other potential customers as well.
In June we announced the signing of an LOI to Dana for the supply and purchase of C. H P. G. Dane and offers high performance natural graphite anode materials to leading Japanese manufacturer ourself automotive lithium ion batteries.
We believe that this LOI with Dana and subsequent worth a damn good accelerates westwater entrance and a Japanese automaker Betsy markets, we believe continuous engagement with potential customers.
Portal for our phase two expansion of the Clinton plant.
From May through July we have sent 36 product samples to potential customers as interest in our future production remains strong we continue to receive positive feedback on our samples.
Turning to slide 12 for a construction update here.
They've been under construction for phase one of our current and planned for over a year.
It seems to be gaining of construction, we've had an excellent safety record by our contractors and wastewater teammates safety is and will continue to be our number one core value.
Well as the protection of the environment, where we live and operate.
As of today after school they've completed the construction of five primary processing buildings.
Installed until overhead cranes completed and are operating our internal R&D lab and has begun installing our Mike and I are shaping meals and other equipment in the SPG building.
Subject to receipt of additional equipment and closing an additional financing.
Plan to install additional equipment later this year and are targeting to have phase one of talented plans ready to produce at optimized anywhere around the rate of 75 on that metric ton of <unk> by the end of 2024.
Outside of California significant expansion potential.
The approximately 70 acres allows for the phase two expansion on the current footprint.
The estimated capital cost for phase two at a pre feasibility level as Florida of about $65 million subject to a definitely a feasibility study, which we intend to begin later in this year.
The phase two expansion is expected to produce 4000 40005 metric tons per year of <unk>.
Currently there are approximately 15 battery manufacturing plants, either under construction or planned to be built in United States Holdings.
All of these battery plants once gratified that meets domestic content requirements of the Hyatt <unk> and.
Westwater plans to be a significant part of it could affect supply solution for these plants.
Turning to slide 14.
He also old mineral rights to approximately 40000 acres across the Alabama gratify belts.
Once you're in operations, the Gallatin gratified processing plant and the goose at Apache It represents the first fully vertically integrated.
Battery grade graphite company in the U S. We believe this will provide significant competitive advantages keeping the domestic content requirement Sheila I previously mentioned.
In April 2022, we completed our exploration drilling program.
And completed a geological model and published the technical report in the fourth quarter of 2022.
Which identified about 3.8 million short tons of graphite enough to supply the estimated feedstock requirements for the Gallatin graphite processing plant for over 45 years.
It is worth noting.
The technical report was completed based on drilling approximately less than 10% of acres to Richfield mineral rights.
During the second quarter, we began work on a preliminary economic assessment for the cushion it bullshit.
Expect to complete this assessment by the end of this calendar year.
Before turning the call over to our Chief Financial Officer, I want to reiterate that these are exciting times at Westwater. I believe you have the team to execute designation plan and I'm extremely proud of the reservoir to team and our contractors the dedication flexibility and hard work of all involved has been an exception.
We remain diligent in our finishing our business plan and creating long term value for our shareholders.
Now I would like to turn it over to our Chief financial officers Officer, Mr. Steve Gates.
Thank you Frank and greetings everyone.
Slide 15, since beginning construction cash expenditures related to phase one have totaled approximately $107 million.
And we estimate approximately $164 million of cash spend remaining inclusive of contingency.
Westwater finished the quarter with a cash balance of approximately $17 3 million and no debt.
We are making significant progress towards finalizing a debt transaction to fund the balance of the estimated cost to complete phase one.
We're engaged with multiple lenders that are interested in projects related to the energy transition and battery materials.
We are currently negotiating term sheets with a subset of those lenders.
While the credit markets have been tight over the past year. We are encouraged by the group of lenders that are looking to invest in the energy transition and specifically our project.
We believe securing a definitive sales agreement is key to finalizing a debt transaction.
Our potential lenders have been encouraged by the positive progress we've made with S chaos and other potential customers.
Turning to the financial summary on slide 16.
Detailed discussion of these items is included in our recently filed Form 10-Q, as well as our second quarter press release.
Net cash used in all operating activities in the first half of 2023 increased by approximately $3 million compared to the first half of 2022.
This increase for the first six months is primarily due to purchases of additional feedstock higher product development costs and higher general and administrative expenses.
These increases in operating cash use were partially offset by higher interest income earned on our cash balance.
Cash used in investing activities for the first half of the year totaled approximately $52 million and are related to the construction of phase one of the Kelly to implant.
Product development costs for the second quarter increased by approximately 800000 compared to Q2 of last year.
This increase relates to additional sample production for customers and ongoing work pursuant to the J D. A with S. K on we expect to occur incur additional product development costs related to customer sample production. During the remainder of 2023 as we work to put L O I's and customer contracts in place.
We believe continuing to work through the qualification process with customers is important to maintain early market mover advantages, reaching our goal of having phase one volumes under contract prior to the Kellogg's implant commencing operations and securing the additional financing needed to complete construction.
General and administrative expenses for the second quarter remained essentially flat compared to Q2 of last year due to managing our overhead costs.
Lastly, net loss for the second quarter was approximately $3 6 million or seven cents per share compared to a net loss of $3 2 million or <unk> <unk> per share in Q2 of 2022.
The increase in net loss was due primarily to the higher product development costs, partially offset by higher interest income earned during the quarter.
With that I'll turn the call back to you operator 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 a tone 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 will pause for a moment as callers join the queue.
Our first question comes from Michael Pierce of Gene Law firm. Please go ahead.
Okay.
Hey, guys how are you doing.
Good.
Good so I saw in your release that you are providing a mass sample to S. K on.
Can you go through that a little bit more and explain.
What level you have to get to in order to get to a sample of that size My my understanding would be that.
You've been able to meet the qualification and specifications necessary for S. K. If they wanted to see if you can do it at a larger scale now would that be true.
Yes, Michael this is Frank yes, you're completely correct.
So when I was in Korea last month, our skill, let's say pushed they feel about our sample.
And it's completely meets their specification.
And we're targeting to produce mass production sample end of this year.
For SK oil.
Okay, you've also indicated that you're in.
Active negotiations for Finalization.
Supply agreement.
Is that something that the company is anticipating being able to finalize this year.
Or is that something that's going to take longer.
No anticipation is as you finalize the dishes are.
Our opinion is that we are in the final stages of negotiation.
So that's where it stands additional work.
Okay. So at this point, it's just being able to come together on all of the different terms.
That's correct Yep.
Okay, Hugh you've also.
You're going to do a release of the P. A on the Tuesday deposit later this year is that something that's gonna have a you know.
Our net present value based on projected graphite prices and things of that nature that we can shareholders can look at and project the value to the company of that deposit.
Hi, Michael This is a this is Steve yeah. The we will follow the SEC rules on reporting that analysis, but it will include an economic analysis of cash flow estimate based upon a preliminary mine design and then following that we start moving more into the full pre fees and definitive feasibility.
<unk> study and we have a qualified expert that we have contracted with to help us with us that are very familiar with our deposit as well as the the rules that we need to follow.
Okay.
And lastly.
Let's say the company is able to complete the sales agreement with SK on or or another.
End user how confident are you once that sales agreement to complete the financing can be completed.
Hi, Michael This is Steve again, I think our I think that's a critical milestone to reach I think a couple of things to keep in mind. The closing of the financing has taken longer than anticipated mainly due to a couple of things the rising rate environment.
Debt capital markets have been tight over the past six to nine months as everybody is.
Trying to see if the fed actually is able to execute a soft landing or not.
But more importantly, this is a new market for us here in the United States.
China dominates the market. So it's taken some time to get the lenders up to speed and getting used to that.
But we also think that there is.
Definitely positive steps, there's multiple lenders that are interested in the battery materials space and all of them are looking towards that offtake.
To help finalize the deal also I think from Westwater perspective, getting an offtake will bring forward either more lenders and more term sheets to help us negotiate the best deal possible for our investors.
Yeah.
Okay or their special.
Funding groups that are able to provide.
Better terms for you.
Green energy ESG type.
Loans versus just a regular alone.
For let's say the oil company.
Mhm yeah.
This is Steve again, so the group of lenders that we're engaged with and talking to most of them have money set aside for.
The energy transition and specifically battery materials and so they are interested in the space, they're looking at the.
The ESG component, so sometimes depending upon the the lender we're talking to that might be on there their infrastructure fund others. It's within their energy team. It's just kind of depends they each have a different view, but there but they are definitely interested in this energy transition.
Okay.
I appreciate it I just I hope to hear a bunch of good news from you guys over the rest of the year.
Thank you Michael Thank you Michael.
Once again, if you have a question. Please press Star then one.
This Q.
Our next question comes from Dmitry Silverstein of water Tower Research. Please go ahead.
Good morning, gentlemen, thank you for taking my call a couple of questions. If I may.
First of all just looking at the S Creon agreement.
And sort of the size of the potential.
Relationship, but you will have with them it sounded to me like it was.
Wanted to basically core could consume most of your phase one production.
First of all is that a correct interpretation and secondly to.
To continue to work with other bedroom manufacturers do you really are you are you now looking at phase two production as well as a oh wait.
A way to meet the demand that that might be coming from other bedroom manufactures that youre negotiating with.
Annulled manufacturers.
Hey, Dmitry. This is Frank Yes, Youre correct on the volume it's the majority of the volume of our phase one plans.
And we continue to engage with other potential customers also to.
To sell the remaining phase one and also make agreements Oh term sheets for a phase II production.
Is there any thought given to sort of the timing I know you.
Haven't gotten through the phase one construction and start up yet, but given the strong demand, but that seems to be.
That seems to be taking place in the industry, especially with the high rate passing them and a lot of interest in domestic production.
Have you given any thoughts as to what the timing of phase two maybe relative to your expectations, let's say a couple of years ago.
Yeah actually if you discussed it last week.
I think based on our design because it's a modular designs. So a lot of units of the facility our copy paste.
So probably we can speed it up somewhat our phase two.
Project.
Okay.
Basically you're just working on making sure the phase one is up and running by the end of 'twenty four.
The science box and then you will hopefully it'll be sold out by that point and then you'll be looking at phase two a more definitive timing of phase two.
That stage would that be the correct way of thinking about it.
Yes, but as soon as we have the financing in place where you want to start off with a feasibility study on phase two.
Based on the <unk> got it got it.
Yeah.
And then the last question again related to your <unk>.
Your work on the unsecured financing to complete the phase one and get into production and start.
Phase two considerations.
You talked about speaking with lenders and the sort of some of these agreements for has been contingent on you getting a sales agreement firms firm sales agreement in place.
Have you looked at it.
Kind of asset level financing, so maybe not institutional but I'm sorry, not financial.
Blenders, but maybe more of a strategic partnership or a <unk> type of agreement with the parent and potential as a way to fund your operations and your capital needs.
Hi, Dmitry. This is Steve we have we have turned over every stone possible looking for the best terms that we can and cost of capital on financing and so we have explored some of those avenues some of those avenues still remain.
But what we have found especially with kind of ABL lending the cost is pretty high and considering we are pre revenue right now the cost and the amount of.
That asset coverage that we would need just is not not the best best source of capital right now and the lenders that we're talking to now are much more attractive on their pricing.
Got it okay. That's good to hear okay. Thank you Steve that's all the questions I have.
Alright. Thanks.
This concludes the question and answer session I would like to turn the conference back over to Frank Barker for any closing remarks.
Thank you.
I want to thank you for your interest in virtual water Resources, Inc.
We made significant progress during the last quarter.
The feedback from our customers on the quality of <unk> samples is fairly bullish dish and.
Based on this we made significant progress in our engagement with our customers and we are negotiating offtake agreements for our products from the <unk> plant.
Installed our first equipment and construction is on track to produce 75 on that metric tonne.
<unk> by the end of 2024.
I'm looking forward to speaking to you on our next call. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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