Westwater Resources, Inc.
Q3 2016 Earnings Call Transcript

Published: 12 Nov 2016

[Operator:]

Thank you for standing by, this is the conference operator. Welcome to the Uranium Resources Third Quarter 2016 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Christopher Jones President and CEO. Please go ahead.

[Christopher Jones:]

Welcome everyone to Uranium Resources third quarter 2016 financial results and a business update conference call. And I'm Chris Jones, Chief Executive Officer for Uranium Resources. You'll find our company listed as URRE on the NASDAQ and URI on the ASX. This call is being webcast on our website at www.uraniumresources.com where we posted slides to accompany our remarks. Telephonic replay of the call will be available from our website for three weeks followings today's call. We will be discussing some forward-looking information today and we caution our audience that such statements involve risk and uncertainties that could actual results to differ materially from our projections. Please review our cautionary statements and notes about foreign reserves on Slide 2 to 4. 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 and the ASX. We have a brief presentation before the question-and-answer portion of today's call. And I'm joined here in our Colorado headquarters by Jeff Vigil, Chief Financial Officer and Vice President of Finance; and we also have on the phone, Ted Wilton, Chief Geologist and Vice President. Let's turn to Slide 5; over the past year our stock has been impacted by the uranium spot price drifting to 12 year lows, currently, at about $18.75 per pound, a drop from the $30 level at year-end 2015. Inventories of uranium and the supply chain have risen putting downward pressure on the price. We believe these prices are unsustainably low and with the worldwide increase in new reactor builds and plants for new nuclear power plants, as well as the low economic incentive for new uranium production capacity, prices are expected to recover at some point in the future. We have restructured our company to retain optionality on the future uranium price recovery with our portfolio of low cost uranium projects led by our Temrezli Project in Turkey. Temrezli has a long life, low CapEx and sits in the lowest quartile of cash costs. Our two licensed uranium ISR processing plants in Texas are on standby for restart upon re-sustained strong uranium prices. We also have one of the largest uranium mineralization bases in the United States. Waiting for higher prices however is not a growth strategy for the company in the short-term. So we are not waiting for change, we are making change. Uranium Resources has improved its investment thesis by expanding into lithium exploration and development with the acquisition of two highly perspective lithium brine deposits in Nevada and Utah. We used our in-house talent and expertise to identify these properties. In August, we acquired our first lithium brine project and now known as the Columbus Basin Project. It is near the only U.S. lithium brine producing facility in Nevada. In September, we purchased the Sal Rica Project in Utah from Mesa Exploration. In short order, we have staked claims on over 24,000 acres and now hold dominant land positions at the Sal Rica Project in Utah, and the Columbus Basin Project in Nevada. Our geologist have logged over 25,000 miles in about three months, evaluating and staking claims in Utah and Nevada. In the meantime, we have reduced our overhead and other expenses; annual cash expenditures have been reduced by more than 35% from 2012. We reduced account payable from approximately $3.1 million at year-end 2015 to $1 million at September 30, 2016, and have current cash of $3.4 million. Taking care of business also means that we have accelerated reclamation work in Texas over the past three years. We continue to work every day to increase shareholder value over the long-term. We continue to be active in opportunistic mergers and acquisitions, as well as the optimization of our asset portfolio to monetize non-core asset such as the sale of Roca Honda to energy fuels last year. The acquisition of the Temrezli Project in Turkey and most recently, the acquisition of dominant land positions in two high potential lithium brine basis in Nevada and Utah. Additionally, the sale of Churchrock and ground point property is on-track to close at the end of this month. This transaction is a value add for both URI and Laramide Resources as it allows to development of these processes and properties at a lower cost profile while allowing both companies to participate in that success. Looking ahead to 2017 and subject to financing; we have budgeted $1.6 million for the exploration and drilling in our two lithium projects with the goal to produce a compliant lithium resource going on one of those projects in the first half of 2018. I will discuss the Columbus Project Basin Project and the Sal Rica Project and more detail later in this presentation. In the meantime, Jeff will take us through the end quarter number, Jeff?

[Jeff Vigil:]

Thanks, Chris, and good morning everyone. On Slide 6, at the recent share price of $1.14 and was approximately $15.4 million shares outstanding, our market capitalization is $15.3 million. Our NASDAQ listed stock continues to show robust trading liquidity an average daily volume of 879,000 shares for the trailing three months. As Chris mentioned, our current cash position as of November 9 was $3.4 million which is expected to fund critical operations through year-end and into early 2017. We are continuing with our efforts to resolve the outstanding $8 million secured convertible loan, some cheers on December 31, 2016, and which is held by our major shareholder resource capital funds. We are in discussions with RCF and other parties and anticipate laps in our plans in the coming weeks. Giving to financial summary on Slide 7, and before getting into the details we will summarize by stating that we have improved our financial position at year-end 2015, we've continued to cut costs, we've paid down accounts payable, and we've increased cash-on-hand. The larger net losses for the quarter and nine months this year compared to last year we're primarily impacted by recording of a significant gain from the sale of the Roca Honda assets in 2015. Let's look at the table now. Cash used in operations was $9.9 million for the nine months ended September 30, 2016 compared with $8.5 million for the corresponding period in 2015. During the nine months of 2016 the company paid $2.1 million to reduce accounts payable which was offset by aggregate decreases in cash expenditures, mainly lower G&A and minimum property expenses of $1.2 million. Minimal property expenses over $1 million in the third quarter 2016 were approximately $100,000 higher than third quarter 2015 due to property acquisition costs associated with our new lithium project. For the nine months ended September 30, 2016 mineral and property expenses were $2.9 million which were approximately $100,000 lower compared with $3 million for the corresponding period in 2015 which was due to lower exploration and evaluation cost. General and administrative expenses excluding non-cash stock compensation were $1.8 million in the third quarter of 2016, a 33% decrease from year ago period as a result of reduced controlling and professional costs related to the company's then ongoing merger with Anatolia Energy in the third quarter 2015. For the nine months period in 2016, G&A again excluding non-cash stock compensation were $5.5 million, 16% lower than the year ago period due to reduced cost again related to the merger activities. Please note, that the slide reflect U.S. GAAP base accounting for G&A, however, in either case we've reduced our G&A expenses. The net loss for third quarter 2016 was $3.7 million or $0.38 per share as compared with $300,000 of $0.14 per share for third quarter 2015. The net loss for the nine months period was $12.6 million or $1.81 per share compared with $8.7 million or $3.61 per share for the corresponding period of 2015. The larger net losses for the quarter for the nine months ended September 30, 2016 were again primarily, due to the results of the gain of $4.3 million recorded for the sales of Roca Honda assets to energy fields in July 2015. And with that, I'll turn it back to you Chris.

[Christopher Jones:]

Thanks, Jeff. On Slide 8, we'll take a look at the supply and demand fundamentals for lithium which reflect a positive future for URI. ERU estimates the global lithium demand shown as lithium carbonate equivalent will rise at a compounded annual growth rate of 6.3% over the next nine years. This growth is driven by rapidly increasing demand for transportation batteries which currently account for 35% of demand and are expected to expand over 60% of total demand by 2025. The rising transportation battery demand is in part the result of dramatically falling lithium battery costs from $900 to $225 per kilowatt; it has technological improvement still have a greater energy storage and efficiency. Present supplies are inadequate to serve this demand growth. Tesla's expansion is a part of the story. In addition, China has exceeded the United States in electric vehicle sales this year. China has commented to a target of 3 million electrical cars on the road by 2025 with green car subsidies for the transportation sector. To take advantage of this increase in demand for lithium batteries, the strategy we have chosen is consistent with our plan to capitalize on our existing base of expertise developing a low cost lithium brine deposit. As such the mining and processing cost of lithium from brine are in the lower cash cost quartile ranging from $2,500 to $3,000 per metric ton. This is a sweet spot we want to be in with our Columbus Basin and Sal Rica lithium brine deposits. Slide 9 shows our Columbus Basin Project which located 27 miles from Albemarle Corporation's Clayton Valley Silver Peak operations, the only U.S. lithium brine producer. The project is also 137 miles southeast of Tesla Gigafactory. Since our initial announcement in August, we've expanded our land holdings to nearly 11,200 acres with the additional taking of claims. The project is well situated near highways and with access to electrical power. Most recently, we completed a detailed grid geochemical sampling program of surface sediments across the entire Columbus Basin Property and assay results are expected next month. Earlier results returned lithium values in a range of 70 to 170 parts per million brine, and 90 to 176 per million in sediments. We are planning programs for further sampling along with an evaluation of other available data for a clear geophysical understanding from which to define drill targets for an exploration program in 2017. We have budgeted $1.6 million for exploration and drilling of both the Columbus basin and Sal Rica projects in 2017. This is of course subject to the availability of financing. Our goal is to prove compliant resource for one of our properties in 2018. Slide 10 shows the Sal Rica project which is located in lithium enriched brine in a pilot valley in Northwestern Utah. The Sal Rica project is within a day's drive of the only lithium brine producer located in neighboring Nevada. In September 2016, we acquired the Sal Rica project from Mesa exploration in exchange for a 2% net smelter return royalty; $50,000 in cash, a 100,000 resected shares with URI as well as an additional 100,000 restricted shares of URI on the first anniversary of the transaction date. Since then, we've expanded the project in all 13,260 acres. The project has good road and power access. Results from a shallow drilling program in 1996 demonstrated the widespread presence of significant concentration of lithium and brine associated with near surface echo [ph]. The drill results for lithium are in a range of 22 to 18 parts per million, initial sampling of sediments by our personnel yielded lithium values ranging from 82 to 113 parts per million. We expect to follow-up with a geographical grid sampling program designed to identify targets for drilling in 2017. In summary, on Slide 11 URI has a new investment thesis; while retaining our optionality on the future rise in uranium prices with our low cost Temrezli Project, our processing plants in Texas and our extensive uranium development properties in New Mexico. We are expanding our energy middles business to include lithium brine projects in Nevada and Utah. This allows us to capitalize on lithium prices as electric vehicles and lithium ion batteries that power them continue their growth around the world. We believe the drive for cleaner energy sources and the need for more electric power in China and elsewhere will underpin lithium demand and prices for many years to come. As you can see URI is not waiting for commodity prices to recover. We are reducing our costs expanding; our business and taking advantage of our in-house to create shareholder value over the short-term and long-term. With that operator, we can open the questions-answer period.

[Operator:]

The first question comes from will now begin the question-and-answer session. [Operator Instructions] The first questions come from Joseph Reagor with ROTH Capital Partners. Please go ahead.

[Joseph Reagor:]

Good morning guys and thanks for taking the questions. So couple of things first one kind of the biggest question I think right now on the RCF loan is any additional information you guy can give us or color as to the options you have available to you in order either refinance that or repay it or convert it to stock. What are your options that you are considering?

[Christopher Jones:]

Joe as you would expect we are in talks with our CF and other about those options and we are not at liberty to talk about them really in any detail at all but I think over the coming weeks we will of course be releasing information on how that debt will be resolved and we ask you to wait, if that's ok.

[Joseph Reagor:]

Okay, understandable. A couple of other minor things, I noticed you guys are planning to do a JORC compliant resource for lithium; is there any reason you would like to go with JORC complaint than our 43-101 given you also have to dual listing in Canada?

[Christopher Jones:]

Actually, Joe we are only listed on the NASDAQ here in the U.S. and on the ASX, so we are obligated to do a JORC compliant resource in any case.

[Joseph Reagor:]

Okay, so essentially because the Australian listing you are going with JORC compliances, that's good. And then the $7.4 million you raised this quarter via - I guess the aspire agreement you can you give us any color on what the average price was for that?

[Jeff Vigil:]

It would have been around - on the aspire deal; it's typically 95% of the market price for the day. So I don't have the numbers right inform of me to be able to give you a specific number but if you use that 95%, I believe that we ended up fairly close to that. Another thing I'd say is that we did utilize our ATM, that wasn't all aspire, and we have two financing vehicles where we utilized in that third quarter.

[Christopher Jones:]

I'd add a little editorial Joe, both of those are pretty low cost financing vehicles for us when compared to normal assurances of stock we are three and 10% or so percent depending on which vehicle we are using in terms of discount.

[Joseph Reagor:]

Okay. One final one if I could, just - the overall uranium market and how you view the future of the company when it comes to Temrezli. Would you still consider it your number project or given the uranium market and a bit of week out at least for like the next year or so. Do you think one of these lithium assets could get developed before Temrezli?

[Christopher Jones:]

Joe it's a great question and I'd answer really in this way so far over the past couple of years the uranium price increase projects have been inaccurate and what we've chosen to do is not bet the whole farm on the uranium price you had to come. So in parallel we can hold Temrezli at relatively low cost until prices dictates its further development and construction. Remember that every day we are around two years away from production at Temrezli on a good solid critical pass. At $18.75 even Temrezli at full cost would struggle to get financing at the same time we see life in the lithium market that deserves our attention right now and we are devoting relatively modest amounts of money $1.6 million to explore those properties and bring them up to a standard for which we can decide what development curve we are going to have.

[Joseph Reagor:]

Okay, that's very helpful. Thanks, I'll turn it over.

[Christopher Jones:]

Thanks, Joe.

[Operator:]

The next question comes from Rob Chang with Cantor Fitzgerald. Please go ahead.

[Rob Chang:]

Hello guy's thanks for the opportunity to ask a few questions. First of all, you mentioned the spending of 1.6 on lithium side. What's the year plan budget for the uranium side for next year?

[Christopher Jones:]

Our holding cost budget for instance for Temrezli tends to be at around $600,000 a year at low cost and both costs that you've seen historically for holding in Texas and New Mexico are going to continue through the year.

[Rob Chang:]

Okay. So parking will be total cash out wait for next year expected to be around…

[Christopher Jones:]

Total cash out wait for holding costs or total cash out for the business?

[Rob Chang:]

For the business.

[Christopher Jones:]

You should be thinking of our business and including our new lithium business at around $10 million to $10.7 million a year estimated.

[Rob Chang:]

$10 million to $10.7 million, all right, great. And the lithium acquisition was certainly interesting and does expand where you are going is there anything on additional acquisitions or even other commodities or are you going to stand by what you have right now.

[Christopher Jones:]

Rob, you're familiar with us; over this past three few years we haven't stood pad on acquisitions at all and you should [indiscernible].

[Rob Chang:]

Fair enough, that's the reason why I had the question. Yes, that's it from me then. Thank you.

[Christopher Jones:]

You bet. Thank you.

[Operator:]

The next question comes from William [ph] with Midtown Partners. Please go ahead.

[Unidentified Analyst:]

I was just wondering if the recent election, what do you think obviously a little early in the game but will be the focus on green energy and so on given some changes in the strategic thinking that the new groups has compared to the old?

[Christopher Jones:]

Thanks for the question William now that we are about 72 hours or 36 hours to reflect we can offer I think a couple of thoughts from a macro standpoint we regard the results as good for business; lower taxes and more favorable business climate with all [indiscernible] Congress and the executive branch in Republican hands. So from that standpoint, business in general is a good thing. With regard to green energy and lithium - and the uranium space, we regard it as good for both. More green energy means more lithium consumed. It's a simple math problem that way but we also regard uranium as the fuel - the low carbon fuel for the future and for the world we still see the same rate of nuclear expansion that we have in the past and then with these low prices we see the economic incentive for many companies reducing to in order to form new productive capacity so we regard that as a good thing for the uranium market. Additionally, this morning in the wall street journal it reports that article where the president of turkey has already reached out to president elect trump to enhance the relationship we already have with turkey for URI we regard that as a good thing as well.

[Unidentified Analyst:]

Okay, all right. Good, thank you.

[Christopher Jones:]

Thank you.

[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:]

Ladies and gentlemen, I want to sincerely thank you for participating on the call with us today and allowing us to provide you with an update on our business. Thanks and 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.