Westwater Resources, Inc.
Q4 2020 Earnings Call Transcript

Published: 16 Feb 2021

[Operator:]

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

[Chris Jones:]

Thanks, Ariel, and thanks everyone for spending a little time with us this morning. Talking about our 2020 results. Accompanying our verbal presentation, of course there is a slide deck we encourage you to follow along. Turning to Slide number 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 statements at your leisure.

[Jeff Vigil:]

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 12th 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, 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. Now as followed by Piedmont Lithium’s announcement of a supply contract with Tesla, and the President’s executive order declaring the national emergency for U.S. domestic production of critical minerals including graphite and vanadium. These events propelled exceptional interest in Westwater’s stock which has continued into 2021.

[Chris Jones:]

Thanks, Jeff. And on to Slide 7, a little bit about our core values. We are based entirely upon continuous improvement and 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 U.S. patent. Our Pilot Program is 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 refines 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.

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question comes from Debra Fiakas of Crystal Equity Research. Please go ahead.

[Debra Fiakas:]

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? It's such a large amount. Is it factors you need to Westwater or just general industry conditions?

[Chris Jones:]

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

[Debra Fiakas:]

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?

[Jeff Vigil:]

Yes, there definitely be an increase what we call non-discretionary expenses as a result of the fixed costs running our business, those are to be primarily about the same dollar amount and 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 the higher-level of dollars probably in the range of about $50 million for those types of activities. And we'll continue that to utilize our existing facilities plus look for project financing to finance the remainder of that capital build out.

[Debra Fiakas:]

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?

[Jeff Vigil:]

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

[Chris Jones:]

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.

[Debra Fiakas:]

Okay, very good. And if I can 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 well, there'll be some leftover. I'm just kind of trying to get an idea of what your supply situation is like?

[Jeff Vigil:]

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

[Debra Fiakas:]

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 turned 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?

[Chris Jones:]

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 inventory.

[Debra Fiakas:]

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

[Jeff Vigil:]

Thank you, Debra.

[Operator:]

Our next question is a follow up from Debra Fiakas. Please go ahead.

[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?

[Chris Jones:]

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 and in the caustic roast and the acid leached 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. And 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.

[Debra Fiakas:]

All right, thank you very much.

[Chris Jones:]

Thank you, Debra.

[Operator:]

Our next question comes from Portfolio. Please go ahead.

[Unidentified Analyst:]

Thank you so much for the presentation earlier and for helping to kind of shed light on where the process is in your Coosa, Alabama as well as where you get 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 U.S. 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 on project. Plus, I saw they are planning to kind of get listed on the New York Stock Exchange pretty soon. So, just you look at them as more competitors or something where you guys might be able to work together just thinking out log?

[Chris Jones:]

Without any specific reference to any players including Nouveau Monde, there's always the 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 earned reputation over the last eight years for working together with all kinds of different counter parties to go to 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, yes, it's always a possibility. And I couldn't comment on any probability in that or I hope that answers your question today.

[Unidentified Analyst:]

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

[Operator:]

. Our next question comes from Robert Smith of Performance Investing. Please go ahead.

[Robert Smith:]

Thanks for taking my questions. What about the possibility of foreshortening the 2028 timeframe?

[Chris Jones:]

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?

[Robert Smith:]

Yeah.

[Chris Jones:]

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 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 timeline's.

[Robert Smith:]

Did you feel that graphite being a critical material will help you in metals like?

[Chris Jones:]

Ariel, back to you.

[Operator:]

Our next question comes from Stan Muse, an investor. Please go ahead.

[Unidentified Analyst:]

Yes, could you just talk about the progress made in lining up customers and securing firm orders? I don't know if you heard me, the question was in regards to lining up customers and securing firm orders for product?

[Chris Jones:]

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

[Unidentified Analyst:]

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

[Chris Jones:]

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 some time 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.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

Our next question comes from Michael Porter of Porter, LeVay, Rose. Please go ahead.

[Michael Porter:]

Chris, will you please address a little bit all the industry articles that have come out by the U.S. automakers about switching over to electric cars over the next five 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?

[Chris Jones:]

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 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 world's largest automakers in the United States in the world. That 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?

[Michael Porter:]

Yes, it does. Thank you very much.

[Chris Jones:]

Thank you, Mike.

[Operator:]

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

[Chris Jones:]

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

[Operator:]

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