Westwater Resources (NASDAQ: WWR), an energy materials development company, today announced its results for the third quarter ended September 30, 2020 and provided an update on its materials development business.
Founded four decades ago and originally incorporated to mine uranium, Westwater Resources has been reinvented as a 21st century energy materials development company focused on the production of battery-grade graphite. The Company’s Coosa Graphite Project is the most advanced graphite project in the United States and, when developed, will produce high purity battery-grade graphite, a material that is essential for the components of high-technology energy applications such as electric automobiles.
Westwater recently announced delivery of 30 metric tonnes of natural flake graphite concentrate at pilot plant contractor Dorfner Anzaplan’s facility in Hirschau, Germany. This material is being utilized in the Company’s pilot plant facilities presently under construction in Germany, upstate New York and Illinois. Operation of the pilot plants is expected to commence this month and continue through March 2021.
Westwater continues to develop a proprietary process for the production of non-Chinese battery-grade graphite. The Company has filed a provisional patent application with the U.S. Patent and Trademark Office for its proprietary graphite purification technology, which produces battery-grade graphite with a more sustainable environmental footprint than that produced in China. Independent performance testing of Westwater’s ULTRA-CSPG™ (Coated Spherical Purified Graphite or “CSPG”) material produced in a laboratory setting shows that it performs as well or better than benchmark commercially available natural flake and synthetic materials. Independent performance testing of Westwater’s ULTRA-PMG™ (Purified Micronized Graphite or “PMG”) material has also shown outstanding resistivity values as a conductivity enhancer.
During the third quarter, Westwater added to its management team by appointing Jay Wago as Vice President of Sales and Marketing. Mr. Wago has years of solid experience in the battery materials business, and he has been tasked with bolstering the Company’s marketing strategy to create greater awareness of Westwater’s American-made graphite battery material to end-users worldwide. The Westwater marketing team, under Mr. Wago’s direction, is working to place battery-grade graphite products produced during the pilot plant program in the hands of potential customers.
On September 8, 2020, Westwater entered into a Letter of Intent to sell its U.S. uranium business to enCore Energy Corp. of Vancouver, BC, a Toronto Venture Exchange-listed company (TSX.V: EU). Westwater will receive approximately $2 million in shares of enCore stock and will retain royalty interests on its former New Mexico properties. This sale is expected to eliminate approximately $4 million in annual expenditures by the Company and nearly $7.8 million in liabilities based on September 30, 2020 book values. The transaction is expected to close on or before December 31, 2020. Westwater will retain its interests in its uranium business that is the subject of an international arbitration with the Republic of Turkey.
On September 30, 2020, the U.S. President issued an executive order addressing the threat to the United States domestic supply chain of reliance on critical minerals from foreign adversaries and declaring such reliance a national emergency. The critical minerals referred to in the executive order were previously identified by the Department of Interior in May 2018, and include both natural graphite and vanadium. The executive order highlights the importance of Westwater’s plans to develop the Coosa Graphite Deposit in east-central Alabama, where the Company has also discovered widespread and significant levels of vanadium mineralization. In 2021, Westwater expects to commence further exploration for vanadium at the Coosa Graphite Project.
“Our management team possesses a unique combination of battery materials knowledge and extensive project-execution experience alongside manufacturing and processing expertise. This expertise spans everything from graphite to precious metals to energy materials,” said Chris Jones, CEO of Westwater Resources. “Coupled with decades of capital markets experience, we have what we need to build a powerful presence in the new energy marketplace. In the third quarter of 2020 we reached a number of significant milestones, and I believe these milestones position our Company for growth throughout 2021. We continue to execute our business plan without pause.”
Net Cash Used in Consolidated Operations. Net cash used in all operating activities was $10.1 million for the nine months ended September 30, 2020, as compared with $7.2 million for the same period in 2019. The $2.9 million increase in cash used in operating activities was primarily due to increased graphite product development expenses, general and administrative expenses and arbitration costs in 2020 compared to 2019. The increase of $1.2 million in cash used during the three-months ended September 30, 2020 compared to the prior year three-month period was primarily due to expenditures for graphite product development activities.
Product Development Expenses. For the three and nine months ended September 30, 2020, product development expenses from continuing operations increased by $1.6 million and $1.9 million, respectively, from the corresponding periods in 2019. Management’s decision to discontinue uranium and lithium operations in the third quarter of 2020 in favor of expanding the Company’s graphite business has allowed for the investment of an additional $1.6 million during the quarter for product development costs, including pilot plant planning and graphite product testing as part of its Coosa Graphite Project.
General and Administrative Expenses. General and administrative expenses from continuing operations for the three-and-nine-months ended September 30, 2020 increased by $0.5 million from their respective periods in 2019. The increase was due primarily to a reversal of executive bonuses of approximately $0.4 million which lowered costs in 2019.
Net Loss from Continuing Operations. Represents operating activities related primarily to the Company’s graphite business, corporate general and administrative costs and arbitration costs related to the Company’s damages claim against the Republic of Turkey. The increase in net loss of $2.2 million for both the three-and-nine-month periods ended September 30, 2020 compared to the respective prior year periods in 2019 was primarily due to increased graphite product development costs for product testing and pilot plant planning, and increased arbitration costs.
Net Loss from Discontinued Operations. The uranium and lithium businesses have been combined and reported as discontinued operations due to the decision to sell the uranium business and discontinue investment in the lithium business, both actions undertaken in the third quarter of 2020 to orient additional resources to the graphite business. Net loss from discontinued operations was $6.4 million and $8.6 million for the three-and-nine-month periods ended September 30, 2020, respectively. The $5.7 million and $5.5 million increases from the respective prior periods in 2019 were largely due to a $5.2 million impairment charge recorded against uranium property, plant and equipment in the third quarter of 2020 as a result of the terms of sale of the uranium assets and liabilities to enCore Energy Corp.
Cash and Working Capital from Continuing Operations. At September 30, 2020 the Company’s cash balances were $5.5 million and working capital from continuing operations was $2.9 million. The Company’s cash balance at October 31, 2020 was $53.3 million. Management believes the significant treasury balance has mitigated the Company’s capital risk through 2021 as the Company’s 2021 non-discretionary budget, budgeted graphite pilot plant program and the remaining budgeted product development initiatives are now fully funded. The Company is pursuing project financing to support primary funding of the capital expenditures for construction of the commercial plant set to occur in the second half of 2021.
Shares Outstanding. Total shares outstanding are 19,021,859 at November 12, 2020.
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