Q4 2023 Westwater Resources Inc Earnings Call and Business Update
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Thank you for standing by this is the conference operator, welcome to the rest of water Resources, Inc. 2023.
Year end business update at the Investor call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions joined 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.
Thank you moderator and thanks to those attending our 2023 year end business update and results call with me.
Today's Terence Cryan, our executive Chairman of the board and Steve <unk>, Our Chief Financial Officer.
During this presentation are forward looking statements. We make are based on management's judgments, including but not limited to future demand and price forecasts schedule and cost projections and economic expectations related to the gelatin plant.
<unk> deposits and capital raising activities, including the estimated timing of those activities.
These and other similar statements are subject to certain risks and uncertainties of Richard's description can be found on slide two in this presentation and in our 10-K for 2023 and our other SEC filings. Please read a cautionary statement realized actual results may differ.
Occasionally from what is discussed today.
Moving to slide three.
But it's worth it as an energy technology company focused on producing at fence natural graphite materials in the United States, using our proprietary technology, including our patent pending purification process.
Turning to slide four.
That's what it has two primary projects both located in the state of Alabama.
Peloton gratified plant with doses flake graphite into coated spherical purified graphite or CPG utilized in lithium ion batteries from consumer electronics to uptick electric.
Electric vehicles and other battery applications.
Second project is the Coosa graphite deposit located approximately 30 miles from the pellet plants.
Belief the close proximity of our two projects located in the budding E T belt in the southeastern region of the U S.
Especially water to become the first physical producer Ashish PG that there's 100% based in the U S.
Moving to slide five we reached several significant milestones within the past 12 months, including signing our first multi year offtake agreements as they scale.
Tier one lithium ion battery manufacturer.
Responding to demand signals from customers, we completed a full de bottlenecking study and now anticipate sheesh piggy production of $12 five metric tons per annum in phase one the collinson plant.
It's a 67% increase from the planned phase one she's because your production announced in March of 2023.
And we are able to accomplish this increase in planned production into two on the 71 million capital budget based on customer demand signals and anticipated favorable project economics, you've started a feasibility study on phase two of the Clinton plant.
And expect to increase the combined production to 50000 metric ton per animal Sheesh B G.
I will provide an update once we complete the feasibility study.
Our qualified mine engineering firm competed in the National economic analysis for the Coosa bullshit.
Approximately $229 million and an estimated pretax I get at 26, 7%.
We remain focused on becoming the first U S based U S domiciled vertically integrated natural graphite anode supply it and believe the fundamentals are of our business remain strong.
Turning to slide six classified as an essential minerals batteries, especially the lithium ion battery used in electric vehicles and clean energy storage systems.
And a lithium ion battery accounts for approximately 50% of the critical minerals by weight.
A typical electric vehicle as well.
On the 75 to 210 pounds of graphite do you.
It doesn't have an established domestic supply chain for Pepsi Kraft grades gratified products and its predominantly a reliance on imports from China.
Recent Chinese export controls on graphite again highlight the critical need for domestic battery grade can affect production in the U S.
Our two primary projects at Pelican plant and the Coosa deposit do you believe that water resources is well positioned to provide local and I and a compliance supply to battery plants in the U S is early market mover advantages.
Moving to slide seven.
We get the demand grow for lithium ion batteries government support for the energy transition and the dominance of the graphite anode market by China as well.
Let the U S government to designate to classify it as a critical minerals.
We believe the recent Chinese export restrictions and additional requirements for exports that again on December one 2023, so it's actually not a wake up call for the entire battery supply chain. They rely on critical minerals from China.
Proximately, 90% of today's Betsy I note materials come from China.
We believe these new restrictions highlight the critical need to establish a reliable supply chain in the U S.
In addition on December 1st U S Department of Energy released proposed guidance what constitutes a foreign entity of concern.
The bipartisan infrastructure law and deflation reduction act under this guidance starting in 2025 and electric vehicle is disqualified from receiving the 75 on the dollar clean vehicle tax credits.
If he bitterly.
Homepage any critical mineral acceptance process or recycled by a foreign entity of concern including graphite.
But those guidance identified China as a foreign entity of culture and we believe this is a positive step for the U S codified market and Westwood is committed to be bought with domestic solution to provide domestically sourced high at a compliant graphite anode material.
And now I would like to turn the call over to our Chief Financial Officer, Keith Gates to discuss to put them correctly.
Steve.
Yeah.
Keith Gates: Thanks Frank.
Turning to slide eight while current adoption rates of E D's and EV demand has been lower than our original forecast by auto manufacturers and others. Many skilled C E vs. As a growth sector within Automotives and expect easy adoption rates to grow as a result, we continue to expect the global demand for graphite.
Material will strengthen resulting in a growing supply in balance for the foreseeable future.
Given the government regulations in the U S and around the World benchmark is forecasting electric vehicles to play a major role in driving the demand for graphite anode material.
Moving to slide nine.
Many battery cell manufacturers utilize a blend of synthetic and natural graphite over the past couple of years. The blend has been around 60% synthetic and 40% natural power.
However, we are seeing a desire by some manufacturers to increase the use of natural graphite to take advantage of its energy density properties, it's lower cost and it's a lower impact on the environment.
Synthetic graphite is primarily produced from petroleum or cold needle Coke and requires extreme temperatures to produce.
According to benchmark minerals natural graphite anode demand will outpace supply at higher rates than other anode materials, resulting in a supply imbalance for natural graphite as early as next year.
<unk> expects the use of natural graphite to grow to 35% of total anode materials by 2035.
Which represents a 40% expected increase compared to 2023.
Turning to slide 10.
10 shows the forecast of global supply and balance just related natural graphite anode supply the global demand for natural graphite anode material is expected to grow to approximately 1.2 million metric tons in 2030 and to more than 2 million metric tons per year by 2035.
The question here is with the new Chinese export restrictions on graphite and I are E and the F. E N C guidance, where our cell manufacturers in E. B automakers going to get irate compliant graphite anode material or C. S. P. G.
Based on our recent conversations with customers. They are concerned with sourcing non F. E. L. C and I are a compliant C. S. P. G for their U S battery manufacturing plants.
Westwater has been at the forefront and if this market dynamic for a number of years.
I believe the progress we've made in developing our product producing samples customer engagement.
Construction progress on phase, one and signing our first multi your off take agreement Gibbs Westwater competitive early market advantage over new entrants into the natural graphite anode market.
And this is why customer engagement remains strong, which we will touch on later in the presentation.
Turning to slide 11.
Flake graphite and P. S. P G prices decreased.
In 2023.
Value created in processing flake into C. S. P. G remains strong and is forecasted to remain strong by third party sources like benchmark minerals.
This was one of the reasons that we took a slightly different approach than other companies by developing our Kelly can graphite processing plant first and planning to develop our coosa graphite deposit second.
And now I'd like to turn the call back to our CEO, Frank blocker for business update Frank.
Thank you Steve.
Turning to slide 12, I stated in my opening remarks, Westwater announced recently that it has signed its first multi year offtake agreement to that scale.
It fully and so ramping up to 10000 metric tons per year.
Finally, you Gotta be agreement the agreement allowed us for sales to be accelerated or extend your game and by mutual agreement.
Good even if the result of strong collaborations in 2020 to be between bus water and S. K person into the J D. A signed in March 2023.
I want to acknowledge the sales and technical team of basketball to put a hard work in achieving this significant milestone.
Knowledge. This is the first offtake for natural graphite anode material executed by 100% U S based company.
Tier one Betsy manufacturer.
Turning now to slide 13 political section update.
We have been under construction for phase one of our Collins and planned for over two years.
Since the beginning of construction you have had an excellent safety record.
Practice and freshwater teammates safety is and will continue to be our number one core value as well as the protection of the environment, maybe we live and operate.
I've mentioned earlier.
Have continued I'd be both are making study and now expect phase one she's piggy production.
$12 five metric tons per year.
This represents a 67% increase in planned teach P. D output two to 75 on that metric tonnes announced last months.
And we expect to add additional production well staying the same at 271 million budget previously communicated.
During 2023, we had finished construction.
Completing five of the six primarily phase one buildings received additional long lead equipment items and began installing shaping and milling equipment.
Sure Oh features included on the slide.
The progress we've made in construction was significant.
Helping secure I'll first offtake agreement.
We are not starting from ground zero and the multiple customers who have toured our site provided positive feedback on our progress.
Once we have secured debt financing you plan to provide an updated estimate for completion of phase one of the pellet plant.
Moving to slide 14.
I cannot emphasize that significant expansion potential.
Approximately 78 that allows for the phase two expansion that couldn't footprint.
As a result of all of the Belgium study.
Now plan to produce a total of 50000 metric tons per year of huge P. G. When phase two is completed.
We have started the feasibility study for phase two and we'll provide an update upon completion.
Based on the forecasted demand supply imbalance discussed previously.
And the need for eye at a compliant material.
Certain customers have shown an interesting phase two volumes.
Currently there are approximately 15 battery manufacturing plants, either under construction or planned to be.
One day delivery up to Clinton plant.
We expect that all these battery plants will once I get a compliant graphite and the local supply.
Turning to slide 15.
The old mineral rights at Coosa.
Plus it to approximately 40000 acres across the Alabama gratified belt.
Once in operations, the gallant and gratifying processing plant and of course that the bus. It represents the first fully integrated domestic battery grade because that's what this company in the U S D.
We believe this will provide significant competitive advantages give him the domestic content requirement and D. I b.
She mentioned.
Moving to slide 16.
In December we shared the results of our initial assessment.
Does this also that the analysis indicated that the Coosa plus it has an estimated pretax cash flow of $714 million.
Anticipated pretax N P fee of approximately $229 million and estimated pretax I. It at a 26, 7% and an estimated mine life of over 20 years, it's worth noting that the analysis doesn't include data from older laws jail to date, but was completed.
Based on two on the five drills.
Totaling a little over 30.
Keith Gates: Feet.
Data from the remaining deal all specialties.
Keith Gates: Drilling is needed in those areas prior to including D C and D. Overall mineral resource estimate of Coosa.
Switching to slide 17.
unknown: Additional mine plan for the push out of bullshit anticipates using conventional small scale open pit mining methods.
Little shallow pits less 100 feet deep.
Speaker Change: Utilizing small conventional loading and hauling equipment to.
P. Eight assumed stays at full scale production the mining rate will be approximately $3 3 million short tons per year Vishal.
Resulting in an initial estimated mine life of 22, yes.
We believe that as the opportunity to increase its estimated mine life if additional drilling.
We continue to believe who's had a plus it is a highly valuable as it has attractive economics and we have started the process seeking strategic investment because that's fast coosa, which could exclude C. G in festus or potash.
Before turning the call back.
Two our chief financial Officer, I want to reiterate that to get us in the market in the U S.
Early stages and believed that 2023 businesses yourselves.
Westwater team were significant achievements as we look to maintain out earlier market mover advantages of this dynamic market.
Now I would like to turn the call back to over to our Chief Financial Officer, Steve <unk> Steve.
Speaker Change: Yeah.
Thank you Frank moving to slide 18.
I've mentioned since beginning construction, we have incurred total cost of approximately 119 million.
Weighted to phase one construction and we estimate approximately 152 million cost remaining that is inclusive of our contingency.
Westwater finished the year with a cash balance of approximately $10 9 million and no debt the construction.
Progress has not only been positively received by customers, but also by interested lenders and we believe given the amount of capital already deployed completing the funding for phase one of that transaction is appropriate and in the best interest of our shareholders. Given the early stage of the graphite anode market outside of China, we have been bringing into.
[noise] lenders up to speed on the market, our technology, our development plan and customer engagement.
Which has taken longer than expected when compared to an established mature domestic energy sector. We are still engaged with multiple lenders to finalize the debt transaction to fund the balance of the remaining phase one costs and note that securing our first off take agreement is a significant step in finalizing a debt transaction.
Each of the interested lenders have different debt terms and credit approval processes and therefore, we believe getting additional off take agreements will only help in securing a debt financing.
Additionally, we are seeking strategic investment as Frank mentioned for the advancement of Coosa deposit.
This could also be an additional source of potential liquidity.
Turning to the financial summary on slide 19.
Detailed discussion of these items is included in our recently filed Form 10-K as long as our full year 2023 press release.
Net cash used in all operating activities for 2023 decreased by approximately $1 7 million compared to the prior year.
This decrease is primarily due to cash received in the fourth quarter of $3 1 million related to our settlement of the arbitration against the Republic of Turkey, and higher interest income year over year of approximately 300000.
These cash inflows were partially offset by higher product development cost during 2023.
Cash used in investing activities during 2023 totaled approximately 58 million and.
And related to the construction of phase one of the Kelly can plant.
Product development costs for 2023 increased by approximately $1 8 million compared to 2022.
This increase relates to additional samples being produced product optimization for customers as well as work perform pursuant to that joint development agreement with S. K on.
General and administrative expenses for 2023 decreased slightly by approximately 100000 compared to last year. This was due primarily to a reduction in personnel costs related to less hiring and relocation expenses in 2023, and stock award forfeitures, which reduced our stock based compensation expense. These.
<unk> and G&A costs were partially offset by costs associated with the Q1 'twenty two 'twenty three executive management change previously announced.
Lastly, net loss for 2023 was approximately $7 8 million or 15 cents per share compared to a net loss of $11 1 million or <unk> 25 per share in 2022 the.
The decrease in net loss was primarily related to a gain recorded a $3 1 million related to the cash proceeds received in the fourth quarter in connection with Westwater settlement of the arbitration against the Republic of Turkey as previously mentioned.
In the fourth quarter of 2023, Westwater completed an unclaimed property review by State Authority and as a result reverse previously estimated to accruals related to the company's former uranium business. These items were partially offset by the higher product development costs.
During 2023 as previously discussed.
Before turning the call over for questions I want to again highlight several 2023 accomplishments that we believe created value for westwater and its shareholders.
During the 2022 year end update call in March of 2023, we previously announced an estimated pretax NPV of 417 million for phase one at 7500 metric tons of annual production.
The work performed in the second half of 2023, and the first part of 'twenty 'twenty four we now expect phase one P. S. P. G production to be 12500 metric tons per annum.
That's an increase of 67%.
Compared to what we announced a year ago, which we believe more than offset the softening graphite prices that occurred during the year.
Further we completed the initial economic analysis for Coosa, indicating a pretax NPV of 229 million.
These milestones along with signing our first multi year off take agreement are positive steps to creating value for westwater shareholders and capitalizing on our position as an early market mover in the domestic graphite anode space.
With that I'll turn the call back to you operator for questions. Thank you.
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 won't hear a tone acknowledging your request.
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The first question comes from Steve Kruger with foresight investing please go ahead.
Oh, good morning, guys. Thanks for taking my question.
Back in the fall of 2022.
You indicated that.
Planned to start.
Phase one that have the phase one building and equipment in place and start commissioning the plant.
It's got a Q2 of 2023.
We we're now a year past that and are you still having secured the financing that are the debt financing that you're trying to get to complete the construction.
And in the meantime, you've made a whole string of positive announcements each of which one would think would put you.
<unk> closer to clearing whatever hurdles of lenders.
Have in order to close the deal for financing with you and I'm just wondering at this point.
How far are you know how far away are you at this point from <unk>.
Speaker Change: Meeting the requirements are.
Our lenders to secure the additional hungry and 77 million that you need to finish phase one.
Yeah.
Hi, Steve. Thanks for the question. This is Steve Yeah, I think every step as you mentioned that we've done in securing our off take advancing the project has gotten us a step closer and had been significant milestones for us.
As I mentioned in my remarks, the project debt financing that we're talking to and since graphite is really dominated by China, a lot of the banks and the lenders are.
Really trying to get up to speed and they're used to things working similar you know in a mature energy market think copper or other metals LNG oil and gas and so a lot of it has been some pretty substantive education of our part to the lenders.
To get through that I think the off take agreement is a huge step we had multiple term sheets on the table.
We have knocked on exclusive with a lender yet we would like to in the near term, but a lot of that we've tried to maintain some flexibility with trying to get the best pricing and the best pricing terms with Canfor for Westwater.
So stay tuned we continue to work forward and keep pressing on towards getting a debt financing in place.
Okay. Thanks for the insight.
Speaker Change: Okay.
Once again, if you have a question. Please press Star then one.
Since there are no more questions. This concludes the question and answer session I would like to turn the conference back over to Frank Barker for any closing remarks. Please go ahead.
Thank you operator, I want to thank you all for the interest in our company and look forward to speaking with you again on our next cool. Thank you.
Okay.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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