Westwater Resources, Inc.
Q1 2019 Earnings Call Transcript

Published: 8 May 2019

[Operator:]

Welcome to the Westwater Resources, Inc. First Quarter 2019 Results and Business Update Conference Call. [Operator Instructions]. I would now like to turn the conference over to Christopher Jones, President and CEO. Please go ahead, sir.

[Christopher Jones:]

Thank you. And thanks to all of you for joining us today. Welcome to the Westwater Resources 2019 Q1 results and Energy Minerals Business Update conference call. With me at our Centennial Headquarters is Jeff Vigil, our CFO and Vice President of Finance and with us by phone is Dain McCoig, our Vice President of Operations. I'd 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. With that, please turn to slide 4, Westwater is an energy materials developer publicly traded on the NASDAQ and focused on developing a portfolio of strategic assets and it's sustainably powered a low carbon future. We are currently developing a battery ready graphite business in Alabama, which is scheduled production in 2022 and which now can includes of vanadium discovery which has the potential to dramatically enhance the value of our graphite business. We are also exploring for lithium in Nevada and Utah on three highly prospective properties and with our two licensed uranium [ph] processing plant in Texas along with 199,000 acres of mineral rights and development properties we are actively leveraging but we anticipate to be a rising in premium market. On slide 5, which covers our highlights for the first quarter of 2019. Westwater continues to move forward on all of its business goals set in 2018. As mentioned, we had a significant vanadium discovery at our graphite property, which was independently confirmed. We've achieved reclamation milestones at our Vasquez property in Texas. We currently have graphite products that four customers were testing. We also achieved successful long term cycling tests on our Coosa graphite. We announced a royalty deal on our non-core uranium assets and Westwater was granted water rights at our Sal Rica property. We also had our request for arbitration accepted by the International Court for settlement of investment disputes related to our Turkey uranium projects. And with that, I'll turn the call over to Jeff to go over our financial results. Jeff?

[Jeff Vigil:]

Thanks, Chris. Good morning, everyone. First, let's look at our capital structure on slide 6. The recent share price is $6.80 and with approximately 1.5 million shares outstanding our market capitalization stands at 10.5 million. During the first quarter of 2019, our select performance was influenced largely by continued pressure on the mineral space, along with the one for 50 reverse split, which was affected after market closed on April 22, 2019 and that was a necessity to maintain our NASDAQ listing. Fundamentally our business is strong. We believe our current asset diversification strategy, our expansion and commitment towards the battery material supply chain sector. Our vanadium discovery at the Coosa project and other factors internally and within our industry provides significant upside potential for the company in the long term. Turning now to slide 7 and our financial summary for the quarter ended March 31. Net cash used and operating activities was 2.7 million in the first quarter of 2019 compared to 3.7 million in 2017. The decrease was primarily due to non-recurring costs of about $750,000 related to the Alabama Graphite Corporation acquisition and which costs were incurred during the three months of first quarter of 2018. Mineral property expenses for the first quarter of 2019 were 634,000 compared with 782,000 first quarter, 2018. Decrease was primarily due to a reduction in operating activities at [indiscernible] project in Turkey of about $100,000 and that was due to the revocation of the mining licenses by the Government of Turkey in June of 2018 and by a reduction of 200,000 reclamation activities at Vasquez and Rosita projects due to challenging weather conditions during the quarter. General and administrative expenses increased by 2% to 1.8 million in the first quarter of 2019 compared to the first quarter of '18. Increases in legal, accounting of public company expenses of about $200,000 were offset by decreases in stock compensation and salary costs. Our consolidated net loss for the first quarter of 2019 was 3.2 million, or $2.15 per share as compared to a loss of 3.4 million or $6.11 per share for the same period in 2018. Please note that these figures are adjusted on a per share basis taken into consideration the 1 to 50 reverse split that was effective on April 23. As of March 31, company's cash balance was $1 million and because we had a working capital deficit at quarter end of $1 million. Company intends to pursue project financing just for the execution of the graphite business plan, including discretionary capital expenditures associated with graphite battery material product development, construction of pilot plant facilities, construction of commercial production facilities. The company's current lithium business plan will be funded by working capital. However the company is pursuing project financing as well, including possible joint venture partners to fund discretionary Greenfield exploration activities. And with that, I'll turn it back to you, Chris.

[Christopher Jones:]

Thanks, Jeff. Turning to slide 8, we will be going through our green energy asset portfolio. This includes our Coosa graphite project, our lithium projects, our uranium assets and our vanadium discovery. Turning to slide 9, the Coosa graphite project is the only near term source of domestic natural graphite. Our proprietary technologies for producing low cost battery grade graphite has been successfully applied to our Coosa material. The current relationships we have with battery manufacturers allow for product customization. Our graphite will be produced using proper and environmentally sustainable processes here in the United States, which is particularly important to national security as confirmed through a Presidential Executive order. Westwater's recent Vanadium discovery at Coosa is a major opportunity for the company. By 10 [ph] goes through our business plan for the Coosa graphite project. Coosa uses 50 year old proven processes that are environmentally sustainable. Processing begins on purchased feedstock which is widely available, the mine is deferred so permitting is no longer the critical path for us. The pilot plant starts in 2020 and we will be generating products for pre-qualification in large batches. Commercial processing will begin in 2022 and our vanadium explorations will be scheduled for this year potential for our products is significant and we have derisked much of this through a staged product introduction. We start with our simpler PMG product in 2022 with [indiscernible] productions played for 2023 and CSPG big production in 2024. Mining will begin at Coosa in 2026. On slide 11, we diagram the importance of graphite as a major component to the lithium ion battery. Further, it is a major and critical component of all types of batteries. Coated Spherical Purified Graphite or CSPG is a critical input material in lithium ion batteries. Initiating and growing graphite production capacity in U.S. is considered critical to the nation's security and prosperity. Turning to slide 12, the importance of batteries cannot be overstated, particularly in terms of enabling wind and solar power generation. Large battery storage enables and improves wind and solar power utilization by storing energy for times when the wind does not blow, and the sun does not shine. Turning to slide 13, we're going to discuss our three lithium projects. On slide 14, we've listed our lithium projects including the Columbus basin Sal Rica in Railroad Valley. In particular, I want to highlight Sal Rica, where we were recently granted water rights for the use of 1500 acre sheets 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 and the Sal Rica project. Turning the slide 15, battery market fundamentals remain very strong for us. It's projected that electric cars and buses are forecasted to grow at a 23% annual growth rate and automakers are actively making the change to electric. In fact, in England, they've made the decision not to build any more gasoline and diesel vehicles by the end of 2040. While in China, there are government mandates that 10% of total vehicle sales are either electric or hybrid. Lithium ion batteries use lithium and graphite and that's clearly an important catalyst in the supply demand equation for batteries. New applications are constantly arising for batteries and continued growth as forecasted through 2025. Lithium prices are estimated to stay over $10,000 per ton through 2027 and meaningful amounts of capital are being invested into expanding lithium battery factories worldwide, which pose a terrific opportunity for the underlying materials. Turning to slide 16, let's move to our uranium assets. On slide 17 this slide covers the near term price catalysts for uranium. As most of you already know, a Section 232 investigation has just been completed with a recommendation from the Secretary of Commerce on the President's desk. There are two possible outcomes, which we believe will both have a significant factor in driving uranium prices higher and with that meaningful upside potential for Westwater. These outcomes include a quota or tariff, which will curtail low cost foreign dumping, resulting in an increase in domestic pricing or the President can take no action, which we believe can also be a catalyst because utilities has stayed out of the uranium market for more than a year. Utilities restocking for inventory can drive underlying uranium prices higher. Currently, the U.S. relies heavily on nuclear generation for baseload power. In fact, more than 20% of all uranium produced in the world is consumed in the United States. Nuclear Power represents the only electrical baseload solution for global electric power growth driven by economic expansion and the focus on carbon reduction. On slide 18, I'd like to talk about our vanadium discovery. On slide 19 we can now confirm that we have a significant vanadium discovery at our Coosa project which has been verified by independent labs. These results demonstrate a widespread distribution of vanadium mineralization throughout the central portion of the Coosa project. We plan to explore this vanadium this year. And the third bullet point in the slide let me summarize for any non-geologists listening. The values that have been determined through this independent analysis has shown a high grade of vanadium contained in the rock which according to current my market prices reflects a potential opportunity for Westwater. With steel markets providing a baseload demand for vanadium as well as increased in electrical energy storage systems. These factors shape the landscape for an expected increase in demand for vanadium. On slide 20, the US Geological Survey has listed vanadium Vanadium as one of the 23 critical metal resources of the U.S. yet there's not a primary vanadium mine currently in the country. Vanadium is used primarily in the production of steel alloys as a catalyst and for the chemical industry, and making of ceramics and glasses and pigments and then vanadium flow batteries for large scale storage of electricity. As I mentioned earlier, wind and solar projects can use large scale battery storage to power the grid when the wind isn't blowing or the sun isn't shining. Market Research Roskill predicts that demand for vanadium will increase 4% over the next five years On slide 21 please show a team of tenured leaders in energy medals development at Westwater. On slide 22 experience truly matters. Together we have a demonstrated track record of highly disciplined management and we've maintained diligence capital stewardship. We restructured and recapitalized the company over the past several years, repositioning Westwater as a diversified energy materials company. Our team has demonstrated history of developing mineral properties from concept all the way to production. In a proactive merger and acquisition program has helped to reposition Westwater singular uranium asset base into a portfolio of diverse low production costs assets or selling non-core uranium properties, redeploying capital to cost effectively expand our resource base into lithium, graphite and vanadium. And finally, on slide 23, why invest in Westwater? The underlying fundamental market drivers of our business are strong across all of our mineral assets. We also are continuing our commitment to expand our portfolio into green energy materials. We are leveraging what we believe to be the rising uranium market which is one of the largest uranium mineralization bases in the United States along with two licensed uranium processing facilities in Texas. The pending decision on uranium quotas the Section 232 investigation provides significant upside potential for U.S. producers and developers. We are leveraging the battery material sector with Coosa graphite project in Alabama and three free lithium exploration projects in the Western United States and our new vanadium discovery at Coosa has the potential to provide entry in the steel market. Along with potential upside in this valuable mineral as demand rises. We're currently debt free as well. Including on slide 24 we intend to purchase concentrated graphite from a third party for processing feedstock in our commercial plant by 2022. Together with our strong asset portfolio, this has significant upside potential purely on the underlying end user fundamentals. Electric cars and buses are forecasted to grow at a 23% annual growth rate and these vehicles are going to need lithium and graphite for their manufacturing providing a domestic manufacturer like Westwater favorable economics. A proven management team with significant experience in energy, minerals development and financial management provides a key advantage in our industry. Finally, throughout the rest of the 2019 we have several anticipated developments, including our continued Coosa graphite project development and anticipated milestone achievements, our exploration and water rights milestone achievements with our lithium projects, and our vanadium project exploration results, which we intend to have later in 2019. With that, Steve, I'm happy to answer any questions.

[Operator:]

[Operator Instructions]. The first question comes from Debra Fiakas with Crystal Equity Research. Please go ahead.

[Debra Fiakas:]

The first question I have, I think is probably best for Jeff, you mentioned the working capital situation and I wondered if you could tell us a bit of an update on the progress you've made with the asset sale, you sold some assets to a [indiscernible] holding company. Could you kind of give us an idea of the timing of that closing?

[Jeff Vigil:]

It's scheduled for no later than June 30 and subject to some closing conditions that they have that could speed that up to before that, but no later than that so that's a bit way from our planning standpoint that's what we're looking at and working with them, keep in touch with them to ensure that all these closing conditions are all performed according to the contracts. But for purposes of our planning again we look at June 30.

[Debra Fiakas:]

And then in regard to the vanadium and graphite deposits that are in Alabama. From a press release, I think issued maybe a month or so ago, there was some discussion about sampling in new areas where you're not sampled before. I would like to get an idea of what you're finding with that sampling. There's actually an additional graphite and additional vanadium both that you had not anticipated, or that hadn't been confirmed before?

[Christopher Jones:]

The samples we took were actually re-samples of the existing holes on the site, as well as some trenches that have been dug in samples before. So the graphite was known, what was unknown previous to our sampling efforts was the vanadium distribution and the quality of them.

[Debra Fiakas:]

Okay, very good. And I think there was also mention of some sort of technical report that would be issued at some point and I wondered if you could tell us the progress that you've made there, and maybe, again, for us non-geologists, what we're going to see when we do finally get that report?

[Christopher Jones:]

For the non-geologists, I would, and I'm not necessarily kidding, stick to the executive summary and then the end pages, there's a lot of stuff in the middle that is really our quality control efforts, making sure that we have a proper statistical [Technical Difficulty] but we are on scheduled for publishing that in May, we're in final edits as we speak, and it'll go up on the website as a result of that. So we're certainly out of time with that. We're pretty excited about the content. What I would also point readers to of any type of geologists or non-geologist would be our ideas around an exploration plan for that particular property. It's pretty exciting.

[Debra Fiakas:]

Okay, and if I could just squeeze in maybe another couple of questions again about the graphite. I noticed that in your presentation that the plans for the pilot plant for the graphite processing is still on tap for 2019 and I wondered if as things as time has gone by and you've made adjustments to your plans, if you could give us a description of what the freestanding building? Is it a closet someplace, is it sitting on some desktop? I just wondered if you could maybe take us on a little tour?

[Christopher Jones:]

You bet. So, there's two or three components to the pilot plant itself. So our concept as it stands right now is a building in Alabama that would be on the site, where we intend to build the commercial facility, that's assuming we build all that in Alabama of course. And then secondly, the processing for the graphite can be in our own facility or it can be at a remote facility where that furnace that electrical furnace exists. The post processing of the graphite is very likely be done in our own facility because that is there's a fair bit of proprietary technology that needs to be developed and tweaked as part of that. So it could be any mixture of that, Debra and I would say in terms of overall size, if it was in the same building, it would be, you know, something on an order of a 10,000 or 20,000 foot structure. So a little bit bigger than a closet and a tad bigger than a breadbox.

[Debra Fiakas:]

Okay very good. And then I just as you were speaking there, I thought of another thing in regard to pilot plans, I noticed that you have mentioned that you would be doing some testing or set up a pilot plant to test the purification equipment as well your plans for purifying the graphite and maybe to just describe a little bit what that means and what it entails.

[Christopher Jones:]

Our present thinking is that's that electrical furnace we were talking about and it can be located at the site or remote and depending upon how far along one of our contractors gets with their own charters [ph]. So we have two different avenues for personally that right now.

[Operator:]

[Operator Instructions]. The next question is from [indiscernible] with Dawson James. Please go ahead.

[Unidentified Analyst:]

I know you were saying it's a ramp up story regarding your three uranium plants. Do you have any idea of the timeline it would take from when you decide to start getting them back up and running again to when they're fully operational? Thank you.

[Christopher Jones:]

It takes up between nine months and a year to restart either one of the two uranium processing facilities in Texas. And it takes on the order of about a $1 million. Our president thinking would be the Rosita would be our first choice for startup. It's remote from the coast and it's been preserved in a pretty great state of health so far. So that's where we're headed.

[Operator:]

The next question is from Debra Fiakas with Crystal Equity Research. Please go ahead.

[Debra Fiakas:]

I did have another follow up question. And this though is in regard to the lithium projects, you just recently received some water right for the [Technical Difficulty] and I wondered if you could maybe give us a brief update on which of the projects already now have water rights attached to them and whether or not you have any additional applications pending.

[Christopher Jones:]

As we stand right now, the Columbus basin is fully stocked with water rights. We own all the water in that basin that is not owned by a small gold operation on the west side. So it's in terrific shape. The water right grant for Sal Rica is first of a couple of applications to be granted 1500 acre feet can be considered as close to a production class of water right if you will, it really depends on the grade of the resources you will know. So, you know, more lithium means less water needed. We are presently on hold in the Railroad Valley with regard to water rights. We really need to finish our geologic work in that basin so that we can ascertain whether or not it is a great target or only a good one from here.

[Debra Fiakas:]

Okay, very good. And then just maybe a little bit of background on water rights and the lithium projects. The water rights are not connected to the project in other words, you could sell them separately, couldn't you?

[Christopher Jones:]

In theory, yes, you could sell the water right separately. But in our case, most of the water as we've seen it and tested it, for instance, in the Columbus basin is too salty for much in the way of any other use. Other brine producers, should they appear could use water, but it will never be drinking water.

[Debra Fiakas:]

Okay, and does the fact that you have the water right? Does that in any way enhance the value of the of the lithium assets that you have?

[Christopher Jones:]

That's a great question one I was hoping to be able to answer yes, it's a binary right. If you don't have the water, you have no ability whatsoever to produce on that site in Nevada for instance. So the guys in the Clayton Valley, for instance, they are arguing over whether or not they have or can access water for their brine operations have a real problem on their hands. In our case we own all the water we need and people in order to produce in our basin for some of the other clean blocks that are out there, they have to come to us before they can access water.

[Debra Fiakas:]

All right, very good. And if it's okay, I'm going to sneak in one more question and I'm going to switch gears back to the graphite. You're good for using third party sources for your initial graphite or battery materials production could you give us an update on your progress and sampling third party sources? Have you done any sampling yet?

[Christopher Jones:]

Yes, we have evaluated multiple sources of graphite so far, and we are in discussions with some of those parties for supply agreement. Those discussions at this point are confidential, but we'll share them when they bear fruit.

[Operator:]

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

[Christopher Jones:]

I just want to remind people that we have a multiple product portfolio of green energy materials and our website, www.westwaterresources.net is full of information that we'd be happy to answer questions on as we go along. Please feel free to contact our IR representative with any questions you might have and they will relay them to us. Once again, thanks. Please have a safe and wonderful day. Thanks Steve.

[Operator:]

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