Westwater Resources, Inc.
Q3 2017 Earnings Call Transcript

Published: 13 Nov 2017

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources Incorporated Third Quarter 2017 Financial 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. [Operator Instructions] I would now like to turn the conference over to Christopher M. Jones, President and CEO. Please go ahead.

[Christopher M. Jones:]

Thanks, Arryal. Welcome everyone to Westwater Resources’ third quarter 2017 financial results and business update conference call. I am Chris Jones, Chief Executive Officer for Westwater. You’ll find our company listed as WWR on the NASDAQ. This call is being webcast on our website at www.westwaterresources.net where we posted slides to accompany our remarks. Telephonic replay of the call will be available from our website for three weeks following today’s call. We will be discussing some forward-looking information today and we caution our audience that such statements involve risks and uncertainties that could cause actual results to differ materially from projections. Please review our cautionary statement and notes about foreign reserves and resources on slides two through three. In addition, there are risk factors including some that are specific to our industry, described in our latest annual and quarterly financial reports filed with the U.S. SEC. We have a brief presentation before the question-and-answer portion of today’s call. I am joined in our Colorado headquarters by Jeff Vigil, Chief Financial Officer and Vice President of Finance; and Dain McCoig, Vice President of Operations joined us by phone from our office in Texas. Let’s turn to slide four. We continued the transformation of our business into a wider spectrum energy resources company. Renaming our business to Westwater Resources reflects that broader focus, an accomplishment we successfully executed on August 21st. At the same time, we strengthened our Board with addition of Terence Cryan as Chairman. Mr. Cryan has served on our Board in prior times and we are happy to have him back. Our lithium business continued its development path with the completion of our Phase 1 drilling project on Columbus Basin. We discovered saline waters at depth and are evaluating steps for further exploration there at this time. It is very important to note that we also acquired all remaining water rights for Columbus Basin. This means that any brine produced on that play, must come by way of permission from Westwater or a mining company operating at the western fringe of the basin. At Sal Rica, we released sample data showing favorable results for lithium with 7 of our 14 holes showing results between 80 and 100 parts per million. We are in the application process for both water rights and an exploration license at Sal Rica. We also announced the clay discovery at our Tulu Tepe properties in Republic of Turkey. This deposit is easily developed and can be a short-term revenue producing project. We will know its commercial potential once product quality testing is complete and initial interest from customers matures, stay tuned for details. Also this quarter, we secured financing with Aspire Capital with an issuance similar to our priority equity credit line with them. This financing instrument coupled with continued cost reduction efforts acts to secure funding for our activities through 2018. We’re especially proud that our continued environmental work has resulted in two major milestones. Reclamation efforts in Texas and license completion efforts in the Mexico and Wyoming have resulted in reclamation bond release to $568,000 thus far in 2017. Additionally and very importantly, the State of Texas has deemed our groundwater restoration efforts at Vasquez complete. This paves the way for us to apply for bond release on this project as well and allows us to begin well plugging and reclamation next month. We’re proud of our team in Texas and our hard work in getting this done. The completion of this phase of reclamation also serves to demonstrate our continued commitment to the communities where we work, something we keep as a core value here at Westwater. We continue to be opportunistic in evaluating business prospects for value creation and for optimization of our portfolio of assets. This includes further monetization of noncore assets where it creates value for Westwater shareholders. In the meantime, we’ve budgeted $1.6 million for our lithium exploration and drilling program in 2018. Today, our Company is standing on two legs of the energy metals business, lithium and uranium. With attractive projects in the U.S. and Turkey, we’re in a great position to capitalize on the green energy future. Now, I’ll turn the presentation over to Jeff to review our capital structure and financial summary. Jeff?

[Jeff Vigil:]

Thanks, Chris. Good day, everyone. First, let’s take a look at the capital structure on slide five. At the recent share price of $0.90 and with approximately 27.6 million shares outstanding, our market capitalization stands at $24.8 million. During calendar quarter -- third quarter, our stock performance remained steady. However, on October 2nd, an analyst report on chemicals outlook and a negative outlook on uranium market impacted all uranium equities from a price of $1.44 on September 29, WWR’s price has dropped to its current price of $0.90.The average daily trading liquidity however remains strong with the trailing three months average volume of approximately 330,000 shares per day. Now, turning to the financial summary on slide six for Q3 results, we want to highlight the improved financial strength of WWR. Our cash position at October 31, 2017 was approximately $6.1 million; and most importantly, we have no long-term debt. Our working capital of $8.2 million at September 30, 2017 along with the financing facilities we’ve put in place, are expected to fund our business activities through 2018. As noted in the last quarter’s conference call, we retired the original $8 million convertible loan with Resource Capital Funds or RCF with a final cash payment of $5.5 million during the first quarter of 2017. In July 2017, we terminated a shareholders’ agreement with RCF which had provided RCF with equity participation rights and board representation rights. Once again, we note that the retirement of this loan saves us $800,000 per year in interest payments to RCF. Most importantly, that $800,000 is half of our budgeted lithium exploration and drilling budget for 2018, and will now be going into the ground. Net cash used in operations for the nine months ended September 30, 2017 was approximately $8.9 million compared to $9.8 million used during the same period of 2016. The $900,000 year over year reduction primarily due to a decrease in general and administrative costs and interest expense and an increase in interest income. During the third quarter, we continued to pare down our G&A expenses. As a result of this work, our G&A expense for Q3 2017 was 10% lower than the equivalent quarter in 2016. Expenditures for mineral property expenses were higher by 27% or approximately $300,000; that was due to cost incurred in the Phase 1 exploration drilling at the Columbus Basin Project. Finally, our net loss for the quarter was approximately $3 million versus a loss of approximately $3.7 million in the third quarter of 2016. The $700,000 decrease was primarily due to the decrease in interest expense. And with that, I’ll turn it back to you, Chris.

[Christopher M. Jones:]

Thanks, Jeff. Let’s look at the uranium supply and demand fundamentals on slide seven. When we speak of lithium demand growth, we are speaking about lithium-ion batteries and the outsized influence of transportation batteries. Bloomberg has recently reported that Tesla’s new production alone can double the world’s output of lithium-ion batteries. CRU estimates that the global lithium demand will rise at an average of over 6% per year through 2025. This growth is driven by rapidly increasing demand, again, for transportation batteries. Turning to slide eight, we speak to the supply demand relationship for lithium a little further. Lithium market commentators cite the spreads and supplies which are dominated by five major companies worldwide, controlling 90% of current production are inadequate to serve the demand growth. There’s also the China factor. Media reports cite that China exceeded the United States in electric vehicle sales in 2016. China has committed to a target of 3 million electric cars on the road by 2025 with green car subsidies for the transportation sector. China’s entire line of lithium battery production reportedly tripled in terms of gigawatt hours in 2015 over 2014. The UK has announced they will ban the sale of hydrocarbon-based vehicles in a few years and every major auto manufacturer is developing electrically powered vehicles. To reiterate, there is not enough lithium in the marketplace to serve these needs, and that bodes well for high prices. Our strategy is to capitalize on our existing base of expertise in developing low-cost lithium brine deposits. The mining and processing costs of lithium from brines are in the lowest cash cost quartile. On slide nine, we show where our projects are on the value creation curve. Note that this curve is designed to be indicative of relative share prices and is adapted from one developed by Brent Cook, a noted exploration resource investor. On that curve, that period from pre-discovery to feasibility represents a real opportunity for investors in junior resource exploration companies. Note that all three of our lithium projects fit at the beginning of that curve. It is up to us, of course, to find economic quantities of lithium, something we are working on right now. On slide 10, and as we have talked about earlier, our three lithium projects sit in highly prospective basins in Nevada and Utah. At Columbus Basin, we own our control over 14,000 acres of mineral rights and we have tied up the remaining groundwater for production, have completed Phase 1 of our drilling program; Phase 2 exploration program is underway. At Sal Rica, we own our control over 13,000 acres of mineral rights and have an application in it, the State of Utah for the water rights and also have an application in process for exploration drilling there, planned for drilling in the first half of 2018. Preliminary results on this basin are encouraging, as we discussed previously. At Railroad Valley, we own our control approximately 9,000 acres of mineral rights and are applying for water rights and evaluating next steps on this new prospective property. Turning to slide 11, we want to remind everyone of our extensive and low-cost uranium development business. Temrezli remains the jewel in this crown as one of the lowest cost future uranium producers in the world. Uranium fundamentals are improving. Most recently, with the announcement that Cameco intends to close 8% of world production capacity; further, they will satisfy market requirements with uranium purchased on the open market out of existing inventory, providing further potential strength to the uranium market. The market’s reaction to this announcement was dramatic, with the 10% uranium price increase virtually overnight. On slide 12, we present our value proposition. We have expanded leverage to green energy metals in lithium and uranium. We’ve increased our exposure to the robust lithium sector by advancing the Columbus Basin and Sal Rica lithium brine projects. We have also retained our leverage to the projected rise in uranium prices with our low cost Temrezli project, our licensed processing plant in Texas and our extensive uranium mineral base. Our Company is debt-free and our business plans including $1.6 million lithium exploration and drilling program are funded through 2018. And to add all of that, our reclamation successes, particularly, in Texas, will provide reclamation bond relief in the near and intermediate term. You can expect continued news flow on our exploration progress and other business updates well into 2018. We’ve had a great year so far. With an improved balance sheet, cash in our treasury and a broader energy metals strategy, this terrific team is well-resourced to achieve great things this year and next. Turning to slide 13, we want to thank you for your time and attention today. Let’s take some questions. Operator, please open up the lines.

[Christopher M. Jones:]

Thanks, Arryal. Ladies and gentlemen, Westwater’s management team thanks you for allowing us to provide this update on our business. Have a great day.

[Operator:]

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