Westwater Resources Inc (WWR) 2020 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources Inc. first quarter 2020 results and business update conference call. (Operator Instructions)

I would now like to turn the conference over to Chris Jones, President and CEO. Please go ahead, sir.

Thanks, Ariel. And good morning, everyone. Welcome to the Westwater Resources first quarter 2020 results and energy minerals business update conference call. We appreciate all of you joining us this morning. For all of you on the call, I trust you and your families are healthy and safe. Joining me on the call today is Jeff Vigil, our CFO and Vice President of Finance, and Dain McCoig, 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 material developer with a diverse portfolio of assets in graphite, lithium, and uranium. We are in the process now of developing a battery-ready graphite business in Alabama, scheduled for production in 2022. And now with the vanadium discovery, and we'll talk about that a little bit later.

We're exploring for lithium in Nevada and Utah on [entirely] two highly prospective properties, and we retain the leverage to a rising uranium price with two licensed processing plants in Texas and about 200,000 acres of mineral rights and development properties in Texas and in Mexico.

But before we speak to plans and results, please turn to slide 4. Our first priority is the safety of our employees, their families, and the community in which we operate. We have worked with our teams, state and local authorities, as well as integrated guidelines from the CDC to ensure our employees and their families are safe. Listed here are a few of the measures we put in place to make sure we can work safely together. Our sites and taxes in our office in Colorado have site-specific requirements in addition to those listed here.

On slide 5, we speak to ensuring our business is safe as well. Graphite process and product development continues without interruption or delay. Our partners in Germany, Dorfner Anzaplan, continue to turn out test results that are helping us design our pilot plant for operation in the fourth quarter of this year.

Our plan to finance our business continues without delay as well. With shares to be issued to Lincoln Park Capital approved by our stockholders last month, we can work to enter into an agreement for an equity line of credit along similar lines as our last one. And with an ATM in place, we can use these capital markets to our advantage. In addition, our subsidiary in Texas was able to secure a PPP loan of approximately $331,000 to defray expenses for our employees there as well.

Also, in a win for our side, ICSID Tribunal ruled that the Republic of Turkey's requests to argue jurisdiction was turned down, and we can proceed to argue the merits of the case. We've requested $36.5 million plus fees in reparations from the Republic of Turkey in our memorial, and a hearing is scheduled for September 2021.

With that, I'd like to turn it over to Jeff Vigil, our CFO. Jeff?

Thank you, Chris, and good morning, everyone.

On slide 6, let's look at our capital structure. A closing shareprice yesterday was $1.52 with approximately 5.6 million shares outstanding, leaves our market capitalization at about $8.5 million. During the first quarter 2020, our stock performance was influenced largely by the coronavirus pandemic, which impacted the entire market, but has made it particularly challenging for the environment for small-cap companies.

WWR share price decreased 63% during the 2020 trading sessions from February 14, 2020 to March 16, 2020. That's from $2.57 to $0.95. Over nearly the same period, the Dow Jones Industrial Average dropped almost 11,000 points. Despite the uncertain economic conditions and tumultuous capital markets we faced in quarter 1, we were able to maintain adequate liquidity to keep our graphite business moving forward and avoid workforce reductions at our South Texas operations.

Now turning to slide 7, our financial summary for the first quarter 2020. Net cash used in operating activities was $3.5 million for the quarter as compared to $2.7 million for the same period in 2019. The increase in cash used during the current quarter was primarily due to the legal and consulting costs related to the Turkey arbitration process.

For the quarter ended March 31, 2020, mineral property expenses increased by approximately $100,000 as compared with the corresponding period in 2019. The increase was primarily due to work related to the Coosa graphite project.

General and administrative expenses were approximately $100,000 higher than the corresponding period in 2019. The increase was primarily due to higher consulting, payroll, and insurance costs. Our consolidated net loss for the three months ended March 31, 2020, was $3.3 million or $0.82 per share as compared with a consolidated net loss of $3.1 million or $2.15 per share for the same period in 2019. This $200,000 increase in our consolidated net loss was partially due to the result of increase in legal and consulting expenses related to the Turkey arbitration process.

On March 31, 2020, the company's cash balances were approximately $900,000, and the company had a working capital deficit of $2.2 million. We are grateful to our shareholders for approving our proposal to enter into a new financing agreement with Lincoln Park Capital at the Annual Shareholders' Meeting, which we held on April 28. Once the new agreement is in place, we should be able to maintain funding levels to support our current business plan.

Should the pandemic surge in the coming months and negatively impacts the capital markets, we will carefully review our resource allocation priorities and to take necessary actions to sustain the company for the long-term.

And with that, I'll turn it back to you, Chris.

Thanks, Jeff. On slide 8, 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.

Turning to slide 9, our Coosa Graphite project will position Westwater as the leading battery-grade graphite supplier in the United States. Located in Western Coosa County 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 milestones we've met in the project have allowed us to accelerate our planning, which will be the catalyst to securing contracts, realizing revenue, and cash flow opportunities quicker than originally anticipated. I will also speak to the strengthening fundamentals that underpin our efforts to develop the project.

The US is currently 100% import dependent for graphite with current global graphite production controlled by China, which may not practice environmental standards equivalent to those in the United States. Having a domestic supply of graphite provides improved operational efficiency, while not compromising on product quality and superior environmental performance.

Turning to slide 10, we plan to construct the Coosa Graphite processing facility to produce the three advanced battery graphite products that are on this slide. That have been developed and demonstrated in the laboratory scale processes over the past several years. Purified micronized graphic or ULTRA-PMG. The laminated expanded graphite ULTRA-DEXDG, and coated spherical purified graphite, our ULTRA-CSPG. We announced last year that we were requested to provide a bulk sample of one metric ton or 2,200 pounds 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 upon the success of the last. Our product has passed the initial testing round consisting of a few grams and a kilogram in size. As these tests are successful, manufacturers then ask for a bulk sample of the material. The fact that we've reached this advanced stage demonstrates the high quality of the products that we've developed to meet the requirements of the worldwide battery industry.

On slide 11, we've provided a flowchart that illustrates the battery graphite manufacturing process we are undertaking. We have secured the 95% to 98% pure graphite concentrate for the pilot and initial production, and plan on transitioning to mined feedstock in 2028. This first step in processing graphite concentrate is to purify the material to 99.98% fewer carbon. From there, sizing, sorting, and shaping has performed with jet mills and air classifiers.

Turning to slide 12, we provided updated economics for the Coosa Graphite Project. We're projecting a CapEx of $53.4 million by 2022, which includes a 15% contingency and allowance for working capital. We anticipate the 1st year of positive cash flow in 2023, with a pre-tax 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 13, you see a map showing our Columbus Basin and Sal Rica project in Nevada and Utah respectively, which we established in 2016. We currently control mineral rights, encompassing approximately 36,920 acres, across two prospective lithium brine basins. 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.

For 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 [arid] American West. These rights are essential to the development of lithium brine resources at both products.

On slide 14, despite what's been a challenging environment for uranium over the past several years, we're starting to see a comeback in uranium prices. Perhaps the biggest recent catalyst has been the result of the Nuclear Fuel Working Group Report, which represents a fundamental shift to nuclear policy not seen at the federal level in several decades. Included in the report are several initiatives to fund and support the purchase of uranium from domestic producers for the creation of a new national stockpile. This is a uniquely bipartisan issue as the United States relies heavily on nuclear power for carbon-free baseload electricity, with more than 20% of all uranium produced in the world consumed here in the United States.

Nuclear power represents the only electrical baseload solution for global electric power growth driven by carbon emissions reduction. 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. We think the demand side is going to grow as these reactors come close to going online. The spot market prices for uranium concentrate are up from $17 a pound in 2016 to $34 a pound today.

On slide 15, we announced early last year the discovery of significant widespread levels with vanadium concentration throughout the central portion of the Coosa project. The widespread distribution of highly anomalous vanadium mineralization is commonly associated with strong graphite mineralisation. 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 a potential opportunity for Westwater. With steel markets providing a baseload demand for uranium, as well as increased use in electrical storage systems, these factors shape the landscape for an expected increase in demand for vanadium.

Turning to slide 16, our company is led by a team of highly tenured leaders with track records of highly disciplined management, and we've maintained diligent capital stewardship. We restructured and recapitalized the company over the past several years, repositioning Westwater has a diversified energy materials company. 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 uranium asset base into a portfolio of diverse low-cost production assets, which include graphite, lithium, and vanadium.

Moving to slide 17, why would somebody consider Westwater as an investment opportunity? I think based on what we presented today and what we anticipate in our plans for developing our green energy materials, Westwater is a compelling investment opportunity. We benefit from strong fundamental market drivers which we expect will lead to improved pricing and greater demand. We've put financial mechanisms in place to ensure we can fund our business today.

Finally on slide 18, Westwater will purchase concentrated graphite from a third party for processing in our manufacturing plant in 2022. Please remember that this contract is already in place. We have a strong asset portfolio with upside potential. Adoption of electric cars and buses is forecasted to grow at a 23% compound annual growth rate, and they use batteries containing graphite. We are a proven management team with experience in energy materials, development and financial management.

Milestones investors should look for throughout the remainder of 2020 include further updates on our Coosa Graphite Project developments and achievements. Please look for those as we go throughout the year. I want to thank you for spending your time with us. And with that, I'm happy to take any questions.

Thank you. We will now begin the question and answer session. (Operator Instructions)

Debra Fiakas, Crystal Equity Research.

Good morning and thank you. My first question is perhaps for Jeff. I wondered if you could elaborate just a little bit on the $300,000 that you received from the stimulus program, the three Ps program. Is that a commitment for a certain number of people for a certain period of time in order for it to be converted into a grant rather than a loan?

Good morning, Debra, and that's a good question. We looked very hard at that. And we very specifically took out the loan at the subsidiary level for Ur-Energy, Inc. that's our Texas subsidiary. And it's very specific to the employees that we have working in South Texas. And it was certainly designed to keep our employment and our employees in place for permitting the reclamation activities in South Texas. And without that -- without the loan proceeds, we would have had a difficult time doing that.

To answer your question about forgiveness [converted] to a grant, we're very confident. And when we did the calculations, we are very confident that we'll be able to to get very close, if not to all of the forgiveness. And one thing we'd like to point out is that the -- as I mentioned in my portion of the discussion, it was a very challenging quarter for us. And so this payment was -- these properties are quite important to us. And one thing to note is, it did not include any of the -- any of our corporate group in Centennial, Colorado. So I just - I want to specifically mention that and say that it was very directed towards maintaining our workforce in South Texas.

Okay. And if I could follow up on that, you said that you'll get very close to qualifying fully for the loan forgiveness and having it converted into a grant. Is it a matter of not having enough work for everyone to do such that they would be employed for a long enough period or that the number of people would be employed for a long enough period? And then also, I wanted to ask you what is the new employee count for the entire company, if you could? I wondered if that had changed in the last few months.

No, it has not. To answer your question, we have 23 folks in South Texas, and we have 7 in Centennial, and 1 located in Nevada as our headcount. And so we've fortunately been able to maintain that headcount. So I don't see any issues in [West and been] able to during that.

The calculations based on 2.5 months of payroll and benefits costs for the South Texas employees. And during the -- effectively, the 60-day period after we recieve the proceeds, we have to consider that 75% of the total proceeds was directed towards payroll and benefits costs. I did not see any problem in being able to accomplish that.

Excellent. Thank you. And then also, if I could ask another question. I was hoping to learn a little bit more about the work that's being done in Germany. Maybe just tell us -- I appreciate that it's engineering activity, and I assume that they've been working from home. I know that there have been some restrictions in Germany as there have been here in the United States, which is perhaps quite easily accomplished given our computing capacity and so forth. But I also wanted to just learn a little bit more about what it is that they're working on. Is it a matter of chemistry? Is it mechanical -- designing of mechanical processes? What -- could you perhaps just give us a little bit more color on what it is that the group in Germany is doing?

Debra, I'm happy to take that, and good morning to you. The work they're doing -- first of all, the lab itself is located in Bavaria, a little town near Hamburg. And as you might expect, lab work is done basically with protective gear on anyway. And they were able to continue without stop or interruption and practicing safe self distancing, as well as some as protecting their health. And we're happy to report nobody has reported any illnesses whatsoever at that lab.

The work they're doing is designing the method of upgrading our production level from the gram level to the kilogram level and on to our pilot plant level. As you might expect, lab processes translate partially but not fully into production level processes. And that's what we've been asking them to do. The results thus far have been good and solid. And as we reported in our presentation, without interruption and on-time. So we're super pleased with what they're doing. All the work we're doing right now is pointed at running our pilot facility in the fourth quarter of this year and we're on time.

Excellent. And if I could just sneak one more question in, this is on an entirely different topic in regard to the Uranium. There has been a lot of chatter about uranium, stockpiles, and special committees and so forth here in the United States. I wondered if you could also just give us some high-level color on the impact of uranium pricing, not only on this whole stockpile concept, not only on your decisions as to whether you produce or not produce, but also on your company's asset values. To be a portfolio of various energy materials assets and as regards to the uranium, how does the value of your report that uranium portion of your portfolio, how is it impacted by pricing and changes in pricing?

Great question. In terms of -- let me bend that question just a little bit. The return to work, the return to production issues around pricing are still north of the current price. So that $34 a pound, which is virtually a doubling of price since 2015, 16 timeframe, it's still shy of almost all production cost in the United States on an all-in sustaining basis. So you might consider that Texas and and all Texas operations tend to need about $45 or better a pound to restart production as a breakeven price. In the underground, operations tend to need something north of $60. So there's still a lot of work to do and that the price before there's actually a return to work. We call it incentive pricing for production.

That said, the working group has made a number of recommendations and expressed concern about the supply chain in the United States. And to that end, they recommended, and it is included in the President's budget proposal for fiscal year 2021 a $1.5 billion -- that's billion with a B dollar, expenditure of money to secure the strategic stockpile of uranium so that the nation's fuel supply is secure. That is split up into $150 million a year for 10 years in the budget proposal.

Now fiscal year 2021 of course begins in October. It's hard hard to expect that there will be a budget approved between now and October, but it could happen. But the proposal is already written. It is already submitted. And I think the uranium industry as a whole and Westwater resources is pretty pleased about that.

Thank you.

(Operator Instructions)

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

Thanks again, Ariel. And thanks to you all for taking time out of your day and listening to our call. Have a great day. Have a safe day.

This concludes today's conference call. You may disconnect your lines.

Thank you for participating and have a pleasant day.