WWR - AMEX

Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources, Inc. Second Quarter 2022 Results and Business Update Conference Call. As a reminder, all participants are in a 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 Chad Potter, President and CEO. Please go ahead, sir.

Thank you, and thank you all for attending our second quarter 2022 results call. With us today is Terence Cryan, our Executive Chairman of the Board; Jeff Vigil, our Vice President and Chief Financial Officer; and Steve Cates, our Chief Financial Officer-elect. Prior to beginning, I would like to congratulate Jeff Vigil on his retirement from Westwater after more than nine years and the election of Steve Cates to Vice President and Chief Financial Officer upon Jeff's retirement at the end of August. Jeff's financial leadership positioned Westwater for financial success in the ongoing construction and planned operation of the Kellyton graphite processing facility in Alabama. We appreciate all you've done for your efforts to prepare Steve for this planned and seamless transition. We would like to wish you a happy and healthy retirement, Jeff. Slide 2. During this presentation, the forward-looking statements we will be making are based off management's judgment, including but not limited to, the cost and scheduled projections related to the Kellyton Graphite Plant and the Coosa graphite deposit. These statements are subject to certain risks and uncertainties of which a description can be found on Slide 2 within this presentation, our 10-K for 2021 and our other SEC filings. Actual results may differ materially from what may be discussed today. On to Slide 3. Why Westwater as an investment? Westwater is an energy technology company focused on producing advanced graphite materials in the United States using our patent-pending purification process. We're currently constructing Phase I of our Kellyton graphite processing plant, which has a projected total capital cost of $202 million. We also hold mineral rights to approximately 41,900 acres across the Alabama graphite belt, which we call our Coosa graphite deposit. We chose to develop our graphite processing plant first and our Coosa deposit second, and we believe there are a number of strategic advantages of this approach. First, it lowers the capital cost and gets us to revenue and positive cash flow sooner. As many published sources have shown, there's increasing supply shortage of processed graphite material for electric vehicles and energy storage markets, with projections that the supply shortage will continue for the foreseeable future. This approach, along with securing our supply of natural graphite flake from a non-Chinese source, will allow us to take advantage of this growing market, while derisking the permitting process in the preparation of the Coosa deposit being brought online in 2028. Turning to Slide 4. Since the beginning of our project, there have been no recordable safety incidents by contractors or Westwater team members. There is nothing more important than safety of our team members and contractors at Westwater, and the protection of the environment where we live and operate. This is a significant accomplishment, and I would like to thank all of our team members and contract team members that continue to keep safety their number one priority. During the second quarter, earthwork and site grading continued and was completed in July with 97,000 cubic yards moved. Construction activity during the second quarter also included the mobilization of our general contractor, receipt of the first components of our long-lead-time equipment and the beginning of the underground utilities, foundations and the manufacturing of plant buildings. Also in June, the company received its air permit from the Alabama Department of Environmental Management and now has all necessary permits to continue and complete the construction of Phase I of the Kellyton Graphite Plant. In regards to our Coosa graphite deposit, in April, we completed our exploration drilling program and expect the resource model by the end of the year. Now I'd like to turn it over to our Chief Financial Officer-elect, Mr. Steve Cates.

Thank you, Chad, and good morning, everyone. Before we discuss our capital position, I want to thank Jeff Vigil. His guidance and mentorship during my time at Westwater has been instrumental. Jeff, I will miss working with you every day. You have not only been a model of professionalism and integrity but an extraordinary example of servant leadership. I wish you and Julie a long and healthy retirement. Now let's look at our capital position on Slide 5. Our closing share price on Tuesday, August 9, was $1.36 and with approximately 47.2 million shares outstanding, which is unchanged since our first quarter investor call on May 11. Our market capitalization stands at approximately $64 million. And as of August 9, our three-month average daily trading volume was approximately 557,000 shares per day. Our share price began the second quarter at $1.92 and ended at $1.08. We believe in the current market environment, investors have taken a more cautious approach to pre-revenue companies, and those companies in need of additional funding in an environment marked by rising rates. Westwater, however, finished the second quarter with a cash balance of $109 million and a working capital balance of approximately $103 million. During the second quarter, we received net cash proceeds of $9 million related to stock sales using our ATM facility. 97% of the cash received from stock sales, during the second quarter, related to trades that were executed at the end of the first quarter, but did not settle and we did not receive the related cash proceeds until April. The company has not been active with its ATM facility since the first week of April. Our working capital balance and zero debt continue to support the construction of Phase I of the Kellyton graphite processing plant. Since beginning construction of Phase I, we have incurred $30 million of the estimated total cost of $202 million. Management continues to aggressively seek out additional or alternative sources of capital funding, which potentially could include more traditional project-level debt, offtake agreements, loan or grants, a strategic partner or a combination thereof. Management is having discussions with multiple third parties and subject to capital market availability, we are looking to raise the additional capital needed by the end of the year. Turning to the financial summary on Slide 6. Net cash used in all operating activities was approximately $6 million for the first six months of 2022 as compared with approximately $9 million in the first half of 2021. The $3 million decrease in cash used in operations was primarily due to reduced product development expenses and costs related to our arbitration against the Republic of Turkey. The cash used in investing activities for the first six months of 2022 totaled approximately $25 million and was related to the ongoing construction of Phase I of the Kellyton graphite processing plant. Cash provided by financing activities for the first six months of 2022 totaled $24.5 million and is related to the already mentioned stock sales on our ATM, which, as mentioned, has not been active since the first week of April. Product development costs decreased $1.7 million during the second quarter compared to the same quarter in 2021. Product development costs for the second quarter of 2022 related to continued product development and optimization costs. Second quarter 2021 product development costs related to our definitive feasibility study for Phase I of the Kellyton Plant and the company's pilot program, both completed in the second half of 2021. We continue to run our pilot program as needed, however, to produce additional samples of our battery-grade products for shipment to and evaluation by potential customers. General and administrative expenses during the second quarter increased by approximately $400,000 compared to the same quarter in 2021. The increase quarter-over-quarter is due primarily to higher payroll and personnel costs as the company continues to build out its team in Kellyton, Alabama. Net loss for the second quarter of 2022 was $3.2 million or $0.07 per share compared to a net loss of $3.5 million or $0.11 per share for the second quarter of 2021. The $300,000 reduction in net loss was due primarily to lower product development costs and lower exploration expenses as we completed our drilling program in April of 2022. These decreases were partially offset by the higher G&A expenses already mentioned and the absence of the unrealized gain recorded in the second quarter of 2021 related to equity securities held by Westwater that we received in 2020 with the final sale of our former uranium business. We subsequently sold those equity securities for cash proceeds in the fourth quarter of 2021. Now turning to Slide 7. We continue to advance Phase I of the Kellyton graphite processing plant. As previously mentioned, since its inception, Westwater has incurred $30 million of the $202 million estimated cost of Phase I. Also, as mentioned previously, in April, we completed exploration drilling at the Coosa deposit. The drilling program was executed on 4,000 acres of the approximately 41,900 acres at the Coosa deposit. We continue to work to ensure adequate financial liquidity, and at June 30, 2022, we had a cash balance of $109 million and no debt. With that, I'll turn it back to you, Chad.

Thank you, Steve. For those joining us today, that are new to Westwater, we've included additional information on Westwater, the graphite market, our team and our core values in the appendix to this presentation. The team and I will now take questions that you may have. Operator, back to you for questions, and thank you very much.

[Operator Instructions] Our first question comes from Dmitry Silversteyn of Water Tower Research.

Quick question. In your press release, you talked about executing a letter of intent with a global manufacturer of consumer batteries. So I'm assuming this is not for the EV battery market, but more for the batteries, kind of the AA, AAA, D, whatever that go into consumer electronics. A, is that correct? And B, is the manufacturer waiting for you to submit samples from your sort of operating Kellyton plant? Or will they be evaluating the samples produced at your pilot plant?

Good morning, Dmitry. This is Terence Cryan. You are correct in terms of your first question that this is a global consumer battery entity. And as regards our ongoing testing and qualification process, we have provided pilot-plant samples to that entity. As I think everyone on this call probably knows, the qualification process for battery-grade graphite is a technical and lengthy one. And we look forward to continuing to go through that qualification process, not only with this particular manufacturer, but we're in active discussions with a fairly large number of potential customers.

Okay, Terry. Just a quick follow-up on that. Can you provide any -- or are there any details to provide as far as what volumes this manufacturer is looking for, for you guys to commit?

Dmitry, we're under a nondisclosure agreement with this particular party. So we are not at this point in a position to provide additional information. It is our overall goal that as we work through the construction process for Kellyton, that we will find customers for all of our output in advance of commissioning the plant.

Got you. Got you. Then switching gears a little bit. You've done quite a bit of work in the second quarter on your Kellyton plant, as you've described in the slides in your presentation. What are some of the things that you're looking to do in the third quarter? In other words, you're working on underground utilities, you're starting to put up walls. Kind of what should we expect to hear from you three months from now when you report on the progress that you made on the plant?

So we'll be providing regular updates as part of our quarterly reporting in terms of progress at Kellyton. As Mr. Potter mentioned, we also are in the process of developing the resource model for our Coosa graphite deposit, and we will have more to say about that in the balance of the year.

Okay. Fair enough. And then last question, if I may. Just a quick update. You mentioned the constituent pressure in the international court with respect to Turkey and nationalization of your assets there. Any updates or anything you want to share as far as your ability to recoup some of those costs? Anything going on, on that front?

So that arbitration process is complete, and we are waiting for a response. We are hopeful that we will get a response in the coming months, but that process and that timeline is somewhat outside of our control. But I can assure you, as soon as we do have a result, we'll announce it.

Our next question comes from Debra Fiakas with Crystal Equity Research.

This might be a bit redundant. I was unfortunately a little bit disconnected during the earlier caller's questions about the Letter of Intent. And I wondered if you could maybe give us a little bit more color on this particular manufacturer. Have they given you any indication of what kind of volumes that they would be ultimately looking for once you begin production in Kellyton?

Good morning, Debra. This is Terence Cryan. Thanks very much for your question. As I mentioned to Dmitry earlier, we are under a nondisclosure agreement with this particular manufacturer. And so unfortunately, I'm not in a position where I can provide you with any guidance as regards to volume at this time.

Okay. Fair enough. And then also from the description in your press release, it sounds like they plan on doing some more testing and qualification work. You're going to be working with them as they go along. But I wondered if you could also maybe give us some hints as to how much testing they've already done. They must have done something, I would think, in order to determine that they want to work with you. And if you could just maybe give us a description of what has transpired so far? What led up to this letter of intent, in other words?

Right. Debra, well, I'll try to be as helpful as I can. We are currently working not only with this manufacturer, but with a broad range of potential customers, who have received samples from our pilot plant. That pilot plant continues to operate, and we continue to produce samples, which in some cases, are produced to the specific specifications of a given customer. So we're having a broad range of conversations and going through the testing and qualification process with a broad range of potential customers. And as I mentioned earlier, our goal is to be in a position that by the end of our construction phase and as we are commissioning the Kellyton plant, we have customers for all of the output of Kellyton. So as we get closer to that, I know we'll have more to say, but we are very active at the present time with a whole range of potential customers.

So is that a yes that this particular manufacturer already has done some testing?

Yes.

Okay. At least we got that far. And then I wanted to ask another question. You've mentioned this in the past, the possibility of participating in a funding opportunity that was announced in May of this year by the Department of Energy. It was pursuant to some legislation and action on the part of the government -- the federal government earlier this year. And it is, of course, to support domestic production of critical materials. And you had suggested that there was some advisors that had been hired that would be helping along these lines. And I wondered if you could give us an update on how that particular funding source might look for you? Is it -- is there a potential to use it for financing the current construction phase? Is it only for working capital once you get into production? Or -- and also have you learned whether or not, it favors domestic producers or companies that sell to domestic end users?

Debra, that is a terrific question and 1 that really covers a lot of areas that we're looking for and eagerly awaiting guidance from the DoE on. We are having all of the conversations that you would expect us to be having relative to sources of potential funding, not only for Phase I of Kellyton, but beyond. It's our practice not to speculate about what those sources of funding might or could be in advance of receiving them. So that's about as far as I can go at the present time.

Okay. So I take it then that this funding opportunity that was announced just in May, of course, hasn't really got up and running yet? Does it have an application process set yet? Or are they still working on that?

Our understanding is that with regard to the DoE grant program that they're targeting to make an announcement with regards to awards for that program in October of this year.

Okay. But you are not ready to confirm whether or not you've applied?

We're active on a whole bunch of different funding opportunities. Debra, as Steve mentioned, our goal is to achieve the lowest cost of capital available to complete Kellyton. And once we have successfully done that, we'll be anxious to share that news with you.

Okay. And then also, this kind of follows along. I wondered, as have investors who've asked questions, about whether or not this initial phase, when you're purchasing graphite on the open market where you have a supply relationship and it's a third-party. Whether or not that has any impact on your production as “A domestic producer?” Is simply the refinement process in the United States enough, for example, to qualify your production as a domestically produced graphite, say, as far as the Department of Defense is concerned or other commercial customers who might be particularly sensitive to that domestic U.S. source?

So with regard to that question, Debra, I think that we can look and draw parallels to other industries. And you could think about the automotive industry, where there's qualifications based on the amount of U.S. content. I'd also point to the fact that we think that as we go through the process of taking natural flake graphite and producing active anode material, there's about a 7x to 9x value increase that occurs. So we believe that during the period of time that we're going to be using a third-party source of graphite in advance of bringing our Coosa deposit online, we will still qualify as Made in the U.S.A. domestic content.

Okay. Very good. Maybe just another follow-up, because this was a specific question that had been sent to me by an investor as a shareholder, who wondered whether or not the pending legislation, the Inflation Reduction Act, which does have quite a bit of funding related to renewable energy and electric vehicles, in particular. Whether or not that legislation is expected to make any changes in how the federal government defines what's domestic and what's not domestic production of graphite in particular?

So as you know, that pending legislation has not been passed by the House or signed by the President. There are still potentially changes that could occur to that. So we're actively awaiting the final version of that bill. We are cheering for the -- from the side lines. We're obviously hopeful that, that will provide additional potential government funding to support critical materials like advanced graphite. So I think we're all watching this and eagerly anticipating additional funding availability.

Okay. Your comment just made me think of another question. It is still, of course, pending and I'm not even certain that all the people in Congress have had a chance to read it. But as it's been discussed so far, have you been made aware of anything in particular that would benefit your company? In particular, for example, does it offer funding for your customers or for end users, say, consumers? How do you think it might be beneficial to Westwater?

Debra, you've got great questions. And I think at this point, given that the legislation is not in final form and still pending, I think we're going to defer any comment on that. Obviously, there is a real reason to believe this is going to be beneficial, not only for us, but for, as you point out, potential customers. So we're going to be watching this closely.

All right. Very good. I'll get back into the queue. And just as a note, I had a little difficulty getting into the call, not in terms of getting into the call, but in terms of asking questions by using a cell phone. And so if you find that there are not very many questions, it could be because people are having trouble getting into the queue for questions, because they're dialing from a cell phone.

All right. Well, thanks again for joining us.

Our next question comes from Michael Porter of Porter, LeVay & Rose.

Chad, just to take a minute out, there are a lot of people who have never seen your properties. Can you sort of discuss or give an overview of what's going on down there? On what you've accomplished and what you're looking forward to do over the next quarter?

Sure, Michael. Thanks for your question. I appreciate that. As you know, construction at the plant continues. In April, we purchased two large existing buildings and built them out at the plant site. We completed all the earthwork and site grading and moved approximately 97,000 cubic yards of dirt. We started all of our underground utilities, building foundations and manufacturing of the buildings as well. In June of this year, we've received all our permits and now have all necessary permits to continue our construction of Phase I of the plant in Kellyton. We've also have our wastewater permit that's in process, and we expect to have that completed by first quarter of next year. The management team is really hyper-focused on managing the impact to our schedule and the budget due to continued global supply chain issues. What we're expecting in the next quarter is continue with the underground utilities and foundations, but also the slab packages and in the second half of this year, the erection packages as well.

Can I please ask you one more question? It was brought up earlier about the pilot plant. Can you give us a little color as to what the customers are requiring of you now the potential customers after they've had their initial samples? What are you doing with it? What's the plan trying to do with it? Sort of give us a little bit more color on that.

Sure. I think as Mr. Cryan has said earlier, we're still aggressively marketing to potential customers. A number of customers, who received our processed graphite, continue to request, based off their specification for their purposes. In addition, new customers -- potential new customers are receiving our samples for their testing as well. Our plant continues to process graphite on a when-requested basis from our sales team. So we're continuing to running it on an as-needed basis.

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

Thank you. So in closing, I'd like to express the thanks and appreciation of the Westwater Board to Jeff Vigil, for his exemplary service as CFO these past nine years. I'd also like to thank all our shareholders for their continued support as we execute on our strategic plan to become the premier battery-grade graphite producer in the United States. Thanks for joining us today, and we look forward to being in regular contact. Good day.