Westwater Resources Inc (WWR) 2019 Q4 法說會逐字稿

Thank you for standing by. This is the conference operator, and welcome to the Westwater Resources, Inc. full year 2019 results and business update conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. (Operator Instructions) I would now like to turn the conference over to Chris Jones, President, and Chief Executive Officer. Please go ahead, sir.

[Stacia]. Good morning, everyone. Thanks for joining us today and welcome to the Westwater Resources fiscal year 2019 results and energy materials business update conference call. With me on the call today is Jeff Vigil, our CFO, and Vice President of Finance. And with us by phone is Dain McCoig, our Vice President of Operations.

I would like to remind our listeners to read our cautionary statements on the following pages as we will be discussing some forward-looking statements and information.

Turning to slide 3. Westwater is a green-energy materials developer with a diverse portfolio of assets in graphite, lithium, and uranium. 2019 saw several key milestones achieved by the company in the development of its battery-ready graphite business. I'll speak more of these details in later slides.

But we are very proud of these accomplishments that led in many cases to material cost savings for the company, Positive revisions to our business plans, all of a shorter duration towards cash flow generation. Our diverse asset portfolio includes lithium and uranium properties, each providing opportunities for Westwater to monetize in support of our long term goal of building our battery graphite business.

With that, I'll hand the call to Jeff to discuss our financials.

Thank you, Chris, and good morning, everyone. First, let's look at our capital structure on slide 4. Recent share price is $2.57 with approximately 4.2 million shares outstanding. Market capitalization stands at $10.8 million. Fundamentally, our business is strong and we believe our current asset diversification step strategy, our expansion and progression towards developing our battery-materials business, along with our vanadium discovery at our Coosa Project and other factors internally and within our industry provides significant upside potential for the company in the long term.

Turning to slide 5, and our financial summary for fiscal year 2019. Net cash used in operating activities was $10 million for the year ended December 31, 2019, as compared to $11.6 million for the same period in 2018. The $1.6 million decrease was due to a decrease in mineral property expense and general administrative expenses year over year.

For the year ended December 31, 2019, mineral property expenses decreased by approximately $700,000 as compared to the corresponding period in 2018. Decrease was primarily due to a reduction in reclamation activities at the Vasquez and Rosita projects due to extremely weather adverse and rainy weather conditions in the first half of 2019 and a reduction in operating activities at the Temrezli Project due to the revocation of the mining licenses by the government of Turkey in June 2018.

General administrative expenses decreased by approximately $900,000 as compared with the corresponding period in 2018. Decrease was primarily due to decreases in executive incentive compensation, consulting expenses and sales and marketing expenses. Our consolidated net loss for the years ended December 31, 2019, and 2018 was $10.4 million and $35.7 million or -- $5.31 and $38.47 per share, respectively. Decrease in consolidated net loss was mainly the result of nearly $18 million impairment charge made during the second quarter of 2018 related to the Temrezli and Sefaatli uranium mineral interests in Turkey.

Company's cash balance was $1.9 million at December 31, 2019, and is $1.6 million at February 12, 2020. Our current cash position is supported by certain financial instruments, including our stock purchase agreement with Lincoln Park Capital and our controlled equity offering sales agreement with Cantor Fitzgerald. Company intends to pursue project financing to support the execution of the battery graphite business plan, including discretionary capital expenditures associated with graphite battery material, product development, [production] of pilot plant facilities and construction of commercial production facilities.

With that, I'll turn back to you, Chris.

Thanks, Jeff. On slide 6, we've listed our asset portfolio as it stands today. This includes our Coosa Graphite project, our lithium projects, our uranium assets, and our vanadium discovery. More on that as we go along. Please turn to slide 7.

We believe our Coosa Graphite project will position Westwater as the leading graphite supplier in the United States. Located in East Central Alabama, we are ideally situated geographically to take advantage of the rapidly growing energy minerals end markets, which includes several of the leading battery and automobile manufacturers.

I will discuss in the next several slides, how certain milestones we have met in the project have allowed us to accelerate our graphite business plan execution, which will be the catalysts to securing contracts, realizing revenue and cash flow opportunities quicker than originally anticipated. I will also speak to the strengthening fundamentals of graphite and underpin our efforts towards developing the project.

US is currently -- excuse me -- 100% import-dependent for graphite with current global graphite production controlled by China, which may not hold to strict environmental standards and procedures. Having a United States-based supply of graphite provides improved operational efficiency, while not compromising on the required quality. Most importantly, graphite production in the United States and the robust environmental protection we have here ensures a more sustainable production process than some overseas jurisdictions.

Turning to slide 8. We announced in September that we secured a long-term purchase agreement with an internationally respected supplier of natural flake graphite concentrates. In securing this agreement, we can process our three battery-grade products without having to wait until the Coosa mine is permitted. This means that we can process graphite in 2022, when we expect our production facilities to be up and running.

In order to find the proper supplier, we conducted rigorous testing to find graphite material of a similar high-quality, resembling the graphite at Coosa. Additionally, in line with our commitment towards high standards of environmental stewardship, we found our supplier to be an excellent partner and provider with whom we feel comfortable engaging on a long-term basis. To facilitate our plan, we've taken delivery of 20 metric tons of graphite feedstock at our Sylacauga warehouse.

Continuing to slide 9. I want to emphasize the importance of this purchase agreement because it provides us a consistent high-quality feedstock. We will use that feedstock in our pilot plant later this year and the production facility to follow in 2022 instead of waiting until our Coosa mine is in production scheduled for 2028.

At the same time, if we have a greater demand from customers, while the Coosa mine is running, we can supplement what's produced at the mine -- our customers' requirements. We are looking to establish Wastewater as a reliable partner in the battery industry. And having this purchase agreement in place will provide our customers the peace of mind that we will meet their needs.

Turning to slide 10. In November, we announced that we've engaged Dorfner Anzaplan, an internationally recognized engineering organization that specializes in high-purity industrial and strategic metals businesses. Dorfner will advance the development of our pilot plant, including the design of the processes needed to purify graphite concentrates and to produce our battery-grade products. We are working together to scale up laboratory sample processes to pilot scale production rates through new work anticipated to be executed over the next two quarters.

In addition, we are working together to define the method, equipment, and operating parameters and requirements for graphite purification as well as defining operating parameters and equipment for processes required to manufacture Westwater's battery graphite products. Dorfner will also assist in designing our pilot program. The pilot plant will provide various product sizes of each of our three battery-grade products to potential clients in advance, to advance their evaluation and prequalification tests. The sample testing effort is the next step in the development schedule of the project as it advances to commercial production decisions.

We expect to complete the pilot plant execution by the end of 2020. Turning to slide 11. We plan to construct the Coosa graphite processing facility to produce the three advanced battery graphite products identified on this slide that have been developed and demonstrated in laboratory scale processes over the past several years. Purified micronized graphite, ULTRA-PMG; delaminated expanded graphite, ULTRA-DEXDG; coated spherical purified graphite, ULTRA-CSPG.

We announced in August that we were requested to provide a bulk sample of one metric ton of our ULTRA-PMG product for further testing. So why is this such an important milestone? Product qualification testing at battery manufacturers is typically a staged approach. Each test dependent on the success of the last. Our product has passed the initial testing rounds, consisting of a few grams than a kilogram in size. As these tests are successful, manufacturers can then ask for a bulk sample of material. The fact that we've reached this advanced stage demonstrates the high quality of our products that we've developed, the requirements are the worldwide battery industry.

Turning to slide 12. We announced early last year the discovery of significant widespread levels of Vanadium concentrations throughout the central portion of the Coosa project. The widespread distribution of highly anomalous vanadium mineralization is commonly associated with strong graphite mineralization. Since the initial discovery, the values that have been determined through an independent analysis have shown a high grade of vanadium contained in the rock, which according to current market prices, reflects the potential opportunity for Westwater.

With steel markets providing a baseload demand for vanadium as well as increase in electrical storage systems, these factors shape the landscape for an expected increase in demand for vanadium. The market price for vanadium is now $6.80-a-pound and work to further explore the Coosa project is contemplated in the next 12 months.

On slide 13, we've provided a flowchart that illustrates the battery graphite process we are undertaking. We are currently at the first stage of this process, as we have secured the 95% to 98% pure graphite concentrate for the pilot and initial production. We plan on transitioning the mine feedstock in 2028. From there, we have the purification process based on environmentally safe, fit-for-purpose technology that produces 99.95%-plus pure carbon. From there, sizing and sorting can be performed with jet mills and air classifiers.

Turning to slide 14, we provided the economics for the Coosa graphite project. We're projecting CapEx of $53.4 million by 2022, which includes a 15% contingency and allowance for working capital. We anticipate the first positive cash flow in 2022 with a pretax NPV of $481 million and an internal rate of return of 41%. These figures don't account for the potential upside from our future vanadium exploration, which can enhance these economics. We are considering equity, project-level debt, and joint venture structures for financing.

Turning to slide 15, we've listed our lithium projects, including the Columbus Basin and Sal Rica, which we established in 2016 and currently control mineral rights encompassing approximately 27,000 acres across two prospective lithium brine basins in Nevada and Utah. The Columbus Basin project now covers more than 14,000 acres with good highways available and ample groundwater access. We own the water rights for this project.

In terms of the Sal Rica project, we have more than 13,000 acres in Utah with good road and power access. Sample results up to 100 parts per million from shallow aquifers have already been made public. We were recently granted water rights for the use of 1,500 acre-feet of groundwater per year in the state of Utah. The right to use water is very important in the [period] American West. These rights are essential to the development of lithium brine resources at the Sal Rica project.

On slide 16, uranium is still a strategic focus for Westwater. They are expected to be 35% more nuclear reactors in 10 years than there are right now, and they all need uranium to produce power. In addition, China, India, Russia and Korea are building reactors or have ordered over 130 new reactors. And we think the demand side is going to grow as these reactors come close to going online. [Spot] market prices for uranium concentrate are up from $17-a-pound in 2016 to over $24-a-pound today. Recent developments from the administration support our view that uranium prices look promising.

[Finally], on slide 17, despite what has been a historically challenging environment for uranium, we believe there are several near-term price catalysts, including the President's request in his fiscal year 2021 budget proposal for $150 million to create a domestic uranium reserve. This is based on the recommendations from the Nuclear Fuels Working Group. Once approved, likely outcome is increased prices for uranium produce here in the United States. United States relies heavily on nuclear power for carbon-free baseload power with more than 20% of all uranium produced in the world consumed here in the US.

Turning to slide 18. Our company is led by a team of highly tenured leaders with track records of highly disciplined management, experienced in project execution, safety, community engagement and environmental management and protection. We restructured and recapitalized the company over the past several years, repositioning Westwater as a diversified energy materials company.

We have enacted a financing strategy through our $10 million purchase agreement with Lincoln Park Capital that allows for lower cost and less dilutive equity to provide working capital. Rather than using typical secondary equity offerings that can come with a high price discounts and significant warrant coverage, we opted for a strategy that uses low price discounts and provides opportunistic timing options that take advantage of market events that cannot be anticipated.

As a result, this agreement lowers our cost of capital while reducing our warrant coverage to below-industry norms [best for] financing, our working capital needs while minimizing dilution. Our team has a demonstrated history of developing mineral properties from concept all the way to production.

And a proactive merger and acquisition program has helped reposition Westwater's singular asset for portfolio in uranium to a portfolio of diverse, low-cost production assets while selling non-core uranium properties, redeploying capital to cost effectively expand our resource base into lithium, graphite, and now vanadium.

Moving to slide 19. Why should someone consider Westwater as an investment opportunity? I believe based on what we presented today, the accomplishments we made in 2019 and what we anticipate in our plans for developing our green energy materials, Westwater is a compelling investment opportunity. Industry fundamentals for our energy material assets have all shown signs of improvement, which we expect will lead to improved pricing and greater demand. We are debt-free, and we've put financial mechanisms in place to ensure we can fund our business today.

And finally, on slide 20, I'm going to reiterate the milestones we've reached thus far in our Coosa Graphite project, which will be the biggest growth driver for Westwater for the foreseeable future. We've secured a long-term purchase agreement with price caps and collars for concentrated graphite, that is similar in quality to the samples from the Coosa mines. This will allow us to have graphite to process our pilot plant, which is expected to be complete in 2020. We've already taken delivery of 20 tons of graphite to service this effort.

We've engaged Dorfner Anzaplan to advance the development of our pilot plant, including the processes needed to purify graphite concentrates and to produce our battery-grade products. We've secured our first customer request for a bulk sample of one metric ton of our ULTRA-PMG product for further testing after passing smaller initial testing rounds. This is one of the last steps in the typical testing program before a customer makes a decision.

In terms of anticipated milestones investors should look for throughout 2020, we expect to have further updates on our Coosa Graphite project developments and achievements. Frankly, I believe we're in a better position today than we were last year. I encourage everyone to visit our website westwaterresources.net, which contains our business plan on the Coosa project as well as a dedicated presentation on the project. Both documents provide investors a clear picture of our plans to unlock shareholder value at Coosa.

We will remain consistent in our policy at a full and fair disclosure and we'll announce developments as they materialize. Thanks for your continued support. And with that, I'm happy to take any questions.

We will now begin the question and answer session. (Operator Instructions) Debra Fiakas, Crystal Equity Research.

Well, thank you. Good morning. Thank you for taking my questions. I have a couple of questions about the pilot plant and then a couple more questions about the business pipeline.

In regard to the pilot plant, I just want to make sure I understand from your comments as well as the presentation, the timeline. You expect to have the pilot plant completed by the end of 2020? Or is it expected to have completed processing the 20 tons of concentrate that you've received?

Debra, thanks for the question, and thanks for attending the call. Always appreciated. We are going to run 20 tons of materials through the pilot plant before the end of this year.

Very good. And is this material then targeted towards fulfilling that customer request for the one ton of PMG for testing purposes?

You bet. Certainly that ton and we will be making bulk material samples for any other prospective customers along the way.

Okay. Very good. And then maybe just one more question again about the pilot plant. Thank you for putting the flow chart in the presentation. They've been at it now for several weeks since you originally hired them, the Dorfner folks. Can you maybe give us a little bit of color on the work they've been doing, to what extent have they change the process, or to what extent have they made any modifications to the flow of things?

Not much beyond our disclosures, of course, but a little color -- what Dorfner Anzaplan is doing is scaling up lab processes to run in a pilot scale. I think a reasonable person would expect that there's a little bit of a change and, basically efficiency design and scaling it up to a pilot plant that's -- it's running about a one-twentieth, one-tenth scale of a production process.

So they've been working very hard at those particular processes. And along the way, they are testing multiple different ways to purify the material so that we can upgrade to -- once again a production scale process as opposed to a lab scale. So I know this, that we were in Germany a couple of three weeks ago, visiting with them, and some equipment suppliers in Frankfurt. And we're very excited about the progress they're making. And we expect news bulletins that we can release sometime in the March-April timeframe.

Excellent. Glad to hear that. I'd like if I could to continue monopolizing this call for just a couple more minutes, because I have a couple of questions about the business pipeline. And thank you for that slide that shows the three products -- the products, the PMG and the CPSG, the pictures of them helped to really bring home the differentiation amongst the three.

And of course, it's exciting to know that there are customers out there that want the PMG, and the CPSG, but let's talk about the product that doesn't have a highlighted an asterisk -- a love note next to it. The DEXDG product. What sort of customer might be interested in that? Who are you going after to buy that delaminated expanded product?

First, DEXDG will go into all three of the battery types that we target. Alkaline power cells, lead acid, and lithium ion batteries as a conductivity enhancement. So we're looking after the same customers. That's the good part. The better part is that what this stuff actually is, as you expand the graphite and delaminate the flakes, and as you approach graphene type flakes, so single-molecule, thick graphite, if you will -- the electrical performance of that material increases. So our DEXDG can be a substitute or an additive to go along with our PMG material for instance, in the first two battery types, lead acid and alkaline power cells.

And then just to increase the battery performance, lithium-ion exclusive of the anode where the CSPG goes, it also enhances battery performance in the rest of the batteries. So for us, it is a development material in a lot of respects. It is relatively complex to make, but we've shown that we can do that already in previous announcements. Well, it's a matter of making sure we can market this stuff to our prospective clients and customers along the way.

And then maybe just one more question, if I could about that same product. I was looking at the flow chart and there's this sizing and sorting step. The things that end up as the DEXDG -- the delaminated product -- are those things that simply got rejected for spheronization and conversion into that CSPG product that goes into the lithium-ion battery anode?

Not really. We size and sort for purpose for DEXDG. We want bigger flakes, basically.

Okay. So one isn't necessarily dependent on the other?

No. You can re-blend the graphite to service any particular customer order on the flies the way we've designed this particular flow chart. So if you've got a higher demand for CSPG, you can send the larger flakes into CSPG. If you have got a higher demand for DEXDG -- and remember, the margins are quite high on either one of those two products. So we really want to make those two materials as much as we can and sell them. So the manufacturing process to be designed by the pilot plant performance will allow us to switch back and forth between those products.

I see. Very good. And then this will be my very last question. And this is in regard again to slide 11, where you talked about your three products. You know that there's an R&D project underway with an automotive manufacturer. And I wondered if you might just give us a little bit more color, if you can on what the character of this R&D project is about. Is this a request? Are you being paid, for example, by a car manufacturer to explore something? Could you just maybe tell us more -- a little bit more about that R&D project and maybe also it's timeline?

Well, it's certainly a cost sharing effort, as opposed to revenue-sharing effort at this point, I'll be perfectly candid there. But as we develop this product for this particular manufacturer, it is a different use for one of our products, the CSPG than a conventional lithium-ion battery. So it is pretty exciting for us, but it's pretty early stage and the manufacturer, like the alkaline power cell manufacturer, they prefer to keep their names of the press for now.

Understood. So this is an R&D project. You're actually exploring something entirely new. Had this -- can you tell us whether or not this car manufacturer might have had some previous time tested the CPSG for a battery purpose?

I really can't say. the testing that has been successful with these guys has been for this new purpose, if you will.

Excellent. Thank you very much. I'll get back in the queue.

(multiple speakers) has been designed from that for the start. Thanks for your question.

Thank you.

Michael Porter, Porter, LeVay & Rose.

Good morning, Chris. How are you?

Mike, thanks. I appreciate the call.

We're getting a lot of calls in the office from shareholders who have been asking us, if there's any effect on the virus in any way on Westwater. Could you comment on that please?

Yes. Certainly, coronaviruses has been in the news and our thoughts and prayers go out to anyone affected by the virus itself or as a family member concerned about somebody that was. And our thoughts and prayers also go to the caregivers. So hopefully they have the tools and the protection they need to cure this once and for all.

Our view -- beyond that, however, is that I think it is really an indicator of the fragile nature of the Chinese business ecosystem. This disease has spread quickly, and it has absolutely and totally disrupted the supply chain for graphite, the manufacture of lithium-ion batteries. And I think it speaks directly to really our credo around being an US-based, a US producer of graphite materials so that our clients and our customers can enjoy diversity of supply in the face of disruptions that are totally outside the norm of product change.

So thanks for the question. I appreciate it.

Thank you.

(Operator Instructions) This concludes the question and answer session. I would like to turn the conference back over to Chris Jones for any closing remarks.

Thanks, Anastasia. And thank you all for spending time with us today and learning about our business and its potential. Please have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating. And have a pleasant day.