Westwater Resources Inc (WWR) 2020 Q4 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources, Inc. full-year 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, Arielle, and thanks, everyone, for spending a little time with us this morning talking about our 2020 results. Accompanying our verbal presentation, of course, is a slide deck we encourage you to follow along. Turning to slide 2, we have a cautionary statement. We will be talking today in terms of some forward-looking statements and we encourage you to read the cautionary statement at your leisure.

Turning to slide number 3. First and foremost, ensuring the safety of our employees is what we do here at Westwater. And to do that, especially during this time of the pandemic, we have eliminated unnecessary travel. We've instituted health protocols for working together and instituted remote working arrangements for our employees based on CDC guidelines, which include a staged return to work at our Centennial office starting March 1 of this year. And we've ensured that our employees are permitted and encouraged to take time off due to illness or the illness of those around them without penalty.

On slide 4, we continue to work with our business partners to maintain our advanced battery graphite product development schedule. We're currently operating our pilot program for the production of battery graphite materials and we'll be talking at length about that as we go along. We continue to work to ensure adequate financial liquidity to support our key operations and business activities. And we have a cash balance of over a $101 million as of February 11.

And Westwater is proceeding in its case for compensation from the Republic of Turkey. Our hearing is scheduled for September 21 of this year, and we request $36.5 million plus fees as compensation. And with that, I'd like to turn it over to our CFO, Jeff Vigil. Jeff?

Thank you, Chris. Good morning, everyone. First, let's take a look at our capital position on slide 5. The closing price on Friday, February 12 was $8.92 with approximately 29.4 million shares outstanding. Our market capitalization stands at approximately $260 million. Our share price began 2020 at $2.11 and ended 2020 at $4.93. During the first nine months of 2020, our stock performance was influenced largely by the ups and downs in the capital markets due to the country's reaction to the COVID-19 pandemic.

However, a series of events in late September triggered upward stock price movement and trading volume in early October. These events included Elon Musk's presentation at the Battery Day Conference where he projected a shortage of battery materials in the next five years as demand for electric vehicles grows exponentially.

That was followed by Piedmont Lithium's announcement of a supply contract with Tesla, and the President's executive order declaring the national emergency for US domestic production of critical minerals including graphite and vanadium. These events propelled exceptional interest in Westwater's stock which has continued into 2021.

During these periods, the company utilized its ATM facility with Cantor Fitzgerald and its equity line with Lincoln Park Capital to raise approximately $50 million from stock sales in October 2020 and an additional $50 million in January and February of 2021. By taking advantage of these opportunities to raise substantial amount of cash at a low cost of capital, the company is now in a fundamentally strong position to execute its budgeted business plan for 2021 and beyond.

Importantly, because of the improved liquidity, management has removed the going concern disclosure in its financial statements. Another milestone event in the second half of 2020 was the company's strategic decision to focus management and resource allocation toward the execution of our battery-grade graphite business plan.

On September 1, we entered into a binding letter of intent to sell Westwater's uranium business to enCore Energy Corp and successfully closed that transaction on December 31, 2020. At closing, Westwater received about $1.8 million of enCore common stock, $700,000 of restricted cash and we retained royalty interest in the New Mexico uranium properties included in the sale.

Also and importantly, the sale of the uranium business removed the $5.2 million asset retirement liability from our balance sheet, transferred $9.3 million in performance bonds to enCore and will allow us to re-allocate nearly $4.5 million of annual uranium operating cost to the graphite business.

On slide 6, we provide a financial summary for the fiscal year ended December 31, 2020. Net cash used in all operating activities was $15.2 million for the year ended December 31, 2020, as compared with $10 million for the same period in 2019. The $5.2 million increase in cash used was primarily due to a $3 million (sic - see press release, "$3.9 million") increase in product development expenses primarily related to our battery-grade graphite pilot program, and a $1.3 million increase in general and administrative expenses.

The increase in general and administrative expenses was due to the cost of recruiting and hiring our graphite sales and marketing executive in mid-year 2020 and near doubling of our D&O liability insurance premiums and an increase in stock compensation expense. Net loss from continuing operations represents operating activities primarily related to the company's graphite business, corporate G&A, and arbitration cost for the company's damages claim against the Republic of Turkey.

The net loss from continuing operations was $13.9 million and $6 million for the 12 months ended December 31, 2020, and 2019 respectively. The $7.9 million increase compared to 2019 was primarily due to the $3.9 million increase in graphite product development cost and $1.3 million in corporate general and administrative expenses and a $2.7 million loss recorded on disposal of our uranium assets -- and this last resulted from the negotiation and resolution of enCore Energy issues in the fourth quarter of 2020.

The net loss from discontinued operations represents activities of the uranium and lithium businesses which are treated as discontinued operations because of the decision to sell the uranium business and discontinue investment in the lithium business.

The net loss from discontinued operations was $9.7 million and $4.6 million for the 12 months ended December 31, 2020 and 2019, respectively. The $5.1 million increase in 2019 is primarily due to a $5.2 million impairment charge on uranium assets recorded in the third quarter of '22 (sic - 2020) after the announcement of the binding letter of intent to sell the uranium assets to enCore.

And finally, on December 31, 2020, the company's cash balances were $50.3 million and the company had a working capital balance from continuing operations of $48.3 million. On February 11, our cash balance was $101 million. These cash resources will be used to fund ongoing operations, fund development of our graphite business plan, and provide a portion of the capital funding required to build the commercial production plan. And with that, I'll turn it back to you, Chris.

Thanks, Jeff. And on to slide 7, a little bit about our core values. We are based entirely upon continuous improvement in the safety of each other, our environment, our assets, the communities where we work, and our reputation. Continuous improvement in cost which is effective and efficient use of our shareholders' assets focused on first quartile cost performance and integrity, meeting the highest level of performance every day, improving our processes, and conservative promises well-kept.

On to slide 8. We are the owners of the leading graphite development property in the United States and we developed a new environmentally sustainable process for purifying graphite and we've applied for a US patent. Our pilot program has operated since the fourth quarter of 2020 and has provided materials in quantity for evaluation and valuable information for our definitive feasibility study presently underway and scheduled for completion at mid-year.

On slide 9, pilot program results. We've purified almost 17,000 kilograms of material. This is the graphite material needed for battery graphite production. We have produced almost 2,000 kilograms of spherical purified graphite, that includes the [fines] we've generated as well.

On slide 10, we've produced 2,200 kilograms of the precursor material for making our DEXDG product. And our purified micronized graphite run begins on the 22nd of this month and should take less than two weeks.

On slide 11, our pilot program has provided key inputs for the definitive feasibility study that was kicked off today. Our pilot program plans include -- we expect to run into quarter two of this year, and we expect to have more than 10,000 kilograms of products expected for further testing by Westwater and prospective customers.

On slide 12, we've engaged Samuel Engineering to lead a group of engineering contractors in the US and Germany to complete a definitive feasibility study for our Coosa project's commercial production facility. We expect this study to be completed mid-year with a plus or minus 15% estimate of capital costs and operating expenses.

On slide 13, our key attributes for the project include proprietary technology as we spoke about for converting our graphite concentrate to a high purity product for battery manufacturers. And once again, we've applied for a patent with the US Patent Office -- a cost advantage, certainly on transportation here within the United States, but also with regard to the processing we intend to use as we go forward.

And remember that we have a vanadium discovery on this particular property that has potential to improve project economics -- and a sustainability effort that includes this environmentally-sustainable process. And remember that our graphite can save over 200,000 tons per year of CO2 emissions using our CSPG product in electric vehicles.

On slide 14, a little bit of a refresher about the battery markets. We know about the transportation market. We know that adoption rates of electric vehicles have increased from 2% to now 4% of all cars sold in the United States. We expect a 23% annual growth rate over the next 10 years in the use of these batteries and electric vehicles and the graphite that goes into them. And this is predominantly lithium-ion batteries.

Other energy storage systems, grid storage, important as we are holding this call now, where sections of the country are under rolling blackouts to preserve the ability to have electricity delivered to homes. These energy systems have the potential to minimize or eliminate those rolling blackouts in times of crisis. We expect an 11% growth rate over these next 10 years. And these are the enabling technologies for wind and solar power as well.

In consumer electronics, like the phone in your hand or the laptop on your desk, we expect -- this is a large market by the way and we expect a 3% compounded annual growth rate in this well-established value chain. In addition to that, specialty batteries for defense, aerospace, medical devices and et cetera represent another growth platform for our products.

On slide 15, graphite is a major component of all batteries, not just the lithium-ion batteries where we are fully 25% of the weight of that battery. Flashlight batteries, non-rechargeable lithium batteries, lead-acid batteries like those in the 96% of cars that are nonelectric on the roads right now, they all use graphite. And graphite has been defined by the United States government as critical to the United States security and prosperity to presidential orders continuing on through this administration as well.

On slide number 16, the Coosa graphite project provides key advantages. It's a near-term source of domestic US battery-grade graphite, customer qualification is underway. A 1-ton bulk sample order has been announced previously to this call. Westwater's graphite will be produced using environmentally sustainable processes right here in the United States and we serve all battery markets. And once again, our vanadium discovery has a chance to contribute revenues, exploration for vanadium and further knowledge on our graphite deposit in Alabama is beginning in the second quarter of 2021.

On to slide 17, our three products once again, ULTRA-PMG, this is the material, it's a conductivity enhancer, and it goes into all types of batteries. The largest market, of course, is lead acid. Our ULTRA-DEXDG product is an improved version of the purified micronized graphite, and it goes into the very same markets as a conductivity enhancer with a higher performance level. And our ULTRA-CSPG, that's the stuff that makes a lithium-ion battery work, it is anode material. And if our CSPG is used in vehicles, we stand to save over 200,000 metric tons of CO2 emissions per year.

On slide 18, we talk about our proprietary purification technology. It has a more sustainable footprint than those technologies currently used in China where most graphite for lithium-ion battery comes from and where environmentally damaging and expensive to manage hydrochloric acid is used.

Our process yields graphitic carbon grade of 99.95% and above. And that's a three-step process that allows for flexible feedstock with consistent performance. It consists of three process steps including caustic roasting of the graphite concentrate, acid leaching of the roasted sample, and thermal treatment of that sample as a final finishing.

On slide 19, we've raised a portion of the funding we need to construct the full-scale facility. As Jeff manages, we have over $100 million in our treasury right now, more than enough money to fund our basic operations for the next couple of years and to partially fund our construction of the production facility under design in the feasibility study now. Other funding can come from loans or loan guarantees, direct equity investments by others or a joint venture and we're exploring all three.

On slide 20, business plan for the Coosa graphite is basically made up of a project plan led by our feasibility study, and which is led by Samuel Engineering. Exploration drilling is expected to begin in Q2 for vanadium and further work on the graphite deposit definition. Full-scale production is expected from purchase feedstock in 2022 producing battery-grade graphite. And we expect to begin mining at the Coosa graphite deposit in Alabama beginning in 2028.

On slide 20 -- I'm sorry, on slide 21, our present estimate of economics includes a pretax NPV of $603 million for the project, an internal rate of return of 36%. Initial CapEx estimated from our PEA at $118 million with the plant commissioned once again in 2022 and revenues beginning in 2023.

On slide 22, a visual of our project plan for your further ratification.

On slide 23, we talk about the team. As Jeff told you, we've added Jay Wago, our VP of Marketing and Sales, over the past several months to bolster our sales effort and to begin to put products in the hands of our prospective customers. You already know about John Lawrence, our General Counsel and Corporate Secretary, with more than 30 years of law and licensing across the nuclear fuel cycle. Cevat Er, our VP Technical Services. He joined in 2015, but he's got decades of experience taking projects from study to feasibility to production.

Dain McCoig, on this call, our VP Operations, he joined us in 2004, and has a strong background in processing technology and project management. And we're happy to have him heading up our operations in Alabama. And Jeff Vigil, you heard from him earlier on the call. He's got more than 40 years of financial experience in mining, manufacturing, and he leads our financial effort at present. And of course, me, I've been in the business for 40 years in different aspects of mining, and some manufacturing and project development work, and I'm happy to lead this high-power team.

On slide 24, experience matters. Energy minerals exploration and development require discipline and diligent capital stewardship. We've restructured and recapitalized the company, positioning Westwater as a green energy materials company with a laser focus on battery-grade graphite products.

We've got an experienced management team with a demonstrated history in finance and green energy development from concept to production. And we've executed a proactive M&A program, including the sale of our non-core uranium properties to redeploy capital, expanding our resource base into green energy materials.

On slide 25, well, why Westwater is an investment? We have a battery-grade graphite development business with strong upside potential. Graphite has been designated a critical mineral by the United States government. We've got a proven management team with experience in energy minerals development and financial management.

And you should, for the year 2021, expect the following catalysts. Pilot plan operational results, Coosa exploration results, feasibility study results, and Coosa graphite project development, and project milestone achievement. With that, I'd like to open it up for questions. Arielle?

(Operator Instructions) Debra Fiakas, Crystal Equity Research.

Thank you. Good morning and thank you for taking my questions. Maybe the first question that I might ask of Jeff is in regard to just one small comment you made in your opening remarks about the D&O insurance. Did I hear that correctly that that's the directors' and officers' insurance? Just out of curiosity, why would it increase at such a large amount? Is it factors unique to Westwater or just general industry conditions?

Thank you, Debra. That's a very good question in that it's important to clarify. It's general industry conditions and -- as presented to us. And certainly, we had a very good marketing effort for the program and it's just reflective of the current status of the environment out there for public companies and nothing in particular related to Westwater.

Okay, excellent. I'm glad to hear that. And, of course, you have been successful in raising some capital and you have a few coins in the bank. It clearly is enough to fund your operations for the near term. Can we anticipate an increase in spending over the first half of 2021 as the feasibility study gets underway and gets completed? Or will it be similar, your spending levels this first half of the year, as it was in 2020? Just a little maybe guidance there on what your budget might look like.

Yes, there will definitely be an increase, what we call nondiscretionary expenses. In other words, those are the fixed costs running our business. Those will be primarily about the same dollar amount, in the range of that $10 million to $12 million. And we do have budgeted certainly higher level of what we call discretionary expenses related to the commercial plant and our capital expenditures, which Chris described on his slide as $118 million over the next two years.

So we certainly anticipate spending a higher level of dollars probably in the range of about $50 million for those types of activities. And we'll continue to utilize our existing facilities plus look for project financing to finance the remainder of the capital build out.

Right. Since you have already raised some capital, is the company prepared to -- as soon as you get the definitive feasibility study completed and all the guidance that you need for what your costs are going to be, are you prepared to begin, say, construction without having received yet project financing? Or would you wait until you know for certain that you've got all of the money at your disposal?

Well, certainly the feasibility studies -- Chris, go ahead if you'd like.

No, that's -- it's a great question, Debra. I think the way I would answer that is certainly the way Jeff started was feasibility study is going to tell us all about a couple of things. One, is the capital costs and the operating expenses of this facility as we get it built. Secondly, it'll act to produce the S curve we need to know month by month and quarter by quarter what it's going to take to build our facility in terms of funding.

Those are the key ingredients to knowing exactly how we are going to proceed going forward. On the one hand, it is far more joyous to be fully funded when you start, but it's important to know exactly what that means. So Debra, that's my non-answer to your question and I'm going to enjoy answering that question in about six months.

Okay, very good. And if I could also ask you a little bit about the pilot program that you have underway, you had taken in 30 metric tons of the natural flake graphite to get started out. And now you're telling us that you'll be operating the pilot arrangement here through the second quarter of 2021. Are you going to need to get more concentrate shipped in or will that 30 metric tons satisfy? You're going to use it all or will there be some left over? I'm just trying to get an idea of what your supply situation is like.

There will be some tonnage left over. Our goal was to produce in excess of 10 million -- I'm sorry, 10,000 kilograms or 10 metric tons of material, and we're going to achieve that goal handily. And we bought the 30 tons to make sure that we had enough as the pilot plant was starting up. As you would, of course, guess, once you start making material go from place to place, you don't always get the initial recoveries that you expect. You fine tune that effort to go ahead and increase the recoveries to what you might expect.

Okay, and then maybe just one last question about the lessons that I hope that you're going to learn from the pilot program. Are you interested in finding out about yield? In other words, 30 metric tons goes in and 10 kilograms -- 10,000 kilograms comes out or whatever the numbers actually turn out to be?

Or are you more concerned not necessarily with the yield results that you get from the pilot arrangement, but rather than a matter of quality or chemistries? Where's the most important lessons that you're going to be learning and that we're going to hear about when you finally do release the pilot testing results, the pilot plant operational results?

They're both really important for our economics. So first of all, you've got to make sure that you can make the products you said you will from the bench level testing at the pilot level and you should count on that.

With regard to yield, it is absolutely and positively a key ingredient to the feasibility study presently underway. So it's not 30 tons in and 10 tons out, it's during the pilot when it was running, what was the yield at that particular moment? That's the reason for the surplus of material.

Okay, all right, very good. Thank you. I'll get back in queue and let someone else ask questions. Thank you.

Thank you, Debra.

(Operator Instructions) Debra Fiakas.

Okay, thank you. I also did want to ask you a little bit more about the purification process that you -- for which you have filed a provisional patent. Can it be considered a closed loop process in which you don't have any kind of waste materials that have to be processed or handled?

Not exactly. So closed loop processes, if you're purifying something, tend to accumulate the impurities. So in our particular process, though, we take water and chemicals in one end and we use them in the processing and the graphite. We recycle all of the materials that we can possibly recycle from the two or three different chemicals we use in the caustic roast and the acid leach for instance.

And we're left with water that we need to treat before we can reintroduce it to the environment. So those are all parts and pieces of how our purification system works and how it's been tested in the field. We're very satisfied that we understand all of the inputs and outputs, and can give ourselves a sustainable stamp of approval, if you will, on making sure that we're not reintroducing material to the environment that isn't already meeting specifications for wherever it's going.

So closed loop systems are good in the ideal, certainly, and we're doing our best to approximate that as close as we can.

All right. Thank you very much.

Thank you, Debra.

Aliredha Walji, ShariaPortfolio.

Thank you so much for the presentation earlier and for helping to shed light on where the process is in your -- Coosa, Alabama as well as where you guys see moving forward. So my question is mainly regarding other players and I was looking up Nouveau Monde Graphite based in Quebec and I was wondering if it might make sense to make synergies with other players, especially given China is obviously the dominating factor.

And with the listing of these materials or minerals as a rare earth and getting the attention of the US government, I was wondering if it might be any synergies where you might be able to work with others, especially given that this is a starting up project. Plus, I saw they are planning to get listed on the New York Stock Exchange pretty soon. So just -- would you look at them as more competitors or something where you guys might be able to work together? Just thinking out loud.

Without any specific reference to any players including Nouveau Monde, yeah, there's always a possibility of working together on projects with other players, whether they be competitors or some, as you suggest, and use the word synergies involved with certain aspects of processing or marketing or whatever else. I think all those possibilities exist.

We have a reputation and an earned reputation over the last eight years for working together with all kinds of different counterparties to go do work whether it's buying, selling different properties around the United States and other places to working together on other projects. So I think to answer your question, yeah, it's always a possibility. And I couldn't comment on any probability in that. I hope that answers your question today.

Yeah, no, I think that's helpful to note.

(Operator Instructions). Robert Smith, Performance Investing.

Thanks for taking my questions. [I was wondering] about the possibility of foreshortening the 2028 timeframe?

Robert, thanks for your question. With regard to -- and you're speaking directly to the beginning of the mining operations on the Coosa project itself?

Yeah.

We conservatively estimate permitting timelines as being a little bit more lengthy, certainly, than industrial facility permitting timelines. And that's really what governs the timeframe around the startup in 2028. If things went better than we expect and all the forces were behind (technical difficulty). For the purposes of our economic studies and really for the purposes of providing proper guidance to our investors, we prefer the more conservative approach to estimating those permitting timelines.

Did you feel that graphite being a critical material will help you in that respect? (technical difficulty)

Arielle, back to you.

[Stan Muse], an investor.

Yes, could you just talk about the progress made in lining up customers and securing firm orders? (technical difficulty) I don't know if you heard me, but the question was in regards to lining up customers and securing the firm orders.

I'm sorry, can you repeat that question? I'm sorry.

Yeah. I was just wondering what progress has been made in lining up customers and securing firm orders for product?

Well, thanks for the question. What we've done, first of all, is we've hired Jay Wago as our Vice President of Marketing and Sales. He has been undergoing a rigorous and disciplined approach to identify possible customers for our products, getting in contact with those folks, and seeing what types of products and when they can accept delivery. At the same time, we are in the process of manufacturing those products in our pilot plant.

It will be sometime before we can, we believe, land a material contract. It usually involves some level of testing on the part of that to prospective customer and some negotiations to follow. So I apologize for the non-answer to the question as to when you can expect contracts and agreements with customers. But understand this, that it's a process that we're in the middle of right now. Thanks for the question.

Okay, thank you.

Michael Porter, Porter, LeVay & Rose.

Chris, will you please address a little bit all the industry articles that have come out by the US automakers about switching over to electric cars over the next 5 to 10 years? And the second question is, could you also give a little bit more color on what you're going to do on the property in the vanadium area?

You bet, Mike, and thanks for the question. First on the vanadium. What we're going to do is -- we'll actually be on site on Saturday of this week, looking at the site and planning for our drilling activities to be commenced during the second quarter of this year. Permits are in place, rather land agreements are in place. Permits are in the works right now for this drilling activity and it is budgeted.

So you should expect results from our drilling starting sometime late second quarter, third quarter. And if the vanadium and the drilling we're doing to expand our thinking about the graphite is successful, a remodeling of the deposit, and presumably that would involve some real science and some announcements at the end.

With regard to auto manufacturers -- and they're not just domestic auto manufacturers. GM announced during the Super Bowl that they are going to cease the production of fossil fuel-powered vehicles here in about 15 years. That's a big statement by one of the largest automakers in the United States and the world.

But every single automaker is in the process of developing some measure of a fully electric or a hybrid electric car. Doesn't matter whether you're talking Ford, Chevy, or Dodge or you're talking about BMW, Mercedes, Volkswagen, Hyundai, every single manufacturer has something going on with regard to electric car manufacturers.

And that's great for our business. It's so great for our business that Elon Musk, one of those manufacturers of cars through Tesla, has forecasted a shortage of graphite. That means great things for us. That means we have a place to place our products. And with shortages, generally speaking, come advantageous pricing, and we hope to enjoy that as well. So Mike, does that answer the question?

Yes, it does. Thank you very much.

Thank you, Mike.

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

Thanks, Arielle. And thanks to you all for spending this time with us. We really appreciate it. Please have a safe day.

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