WWR - AMEX

Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources, Incorporated Third Quarter 2022 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 Chad Potter, President and CEO. Please go ahead, sir.

Thank you, moderator. And thank you all for attending our third quarter 2022 results call. With us today is Terence Cryan, our Executive Chairman of the Board; and Steve Cates, our Chief Financial Officer. Slide 2. During this presentation, the forward-looking statements we will be making are based upon management's judgment, including, but not limited to, future graphite demand and price forecast, cost and scheduled projections related to the Kellyton Graphite Plant and the Coosa graphite deposit and capital raising activities. These and other similar statements are subject to certain risks and uncertainties, which a description can be found on Slide 2 within this presentation and in our 10-K for 2021 and our other SEC filings. Please read our cautionary statement and realize that actual results may differ materially from what maybe discussed with you today. On to Slide 3. Westwater is an energy technology company focused on producing advanced natural graphite materials in the United States using our proprietary technology, including our patent pending purification process. We are currently constructing Phase I of our Kellyton graphite processing plant, which has a projected total cost of $202 million. Samples continue to be produced and have been sent to 27 potential customers for evaluation. We have executed four LOIs to-date and we are actively working to put more LOIs in place before operations begin. We also hold mineral rights to approximately 42,000 acres across the Alabama Graphite Belt, which we call our Coosa graphite deposit. Slide 4. Today, we are reaffirming our value proposition as a domestic source of battery grade natural graphite materials. In addition, we continue our ESG focus, including environmental stewardship and our business plan that includes the potential for future expansion of our graphite business. On to Slide 5. Industry experts believe that the battery markets and the demand for graphite will experience significant growth for the foreseeable future. We believe that the advanced graphite materials produced at the Kellyton Graphite Plant will support the energy transition to electric vehicles, and there are a number of other tailwinds present in the graphite market. As many industry experts have pointed out, graphite is the number one material by weight in lithium-ion battery and the US is currently dependent on foreign imports of this critical mineral. The global battery energy storage business news channel recently reported that automakers plan to increase spending on electric vehicles to $1.2 trillion by 2030, including for batteries and related raw materials. In August, the US Government passed the Inflation Reduction Act or IRA. This is an important piece of legislation for the battery materials industry in the US because it includes a domestic content threshold. Related to battery materials for EV batteries, that must be met for buyers of electric vehicles to take advantage of the clean vehicle tax credit. Governments around the world have passed legislation regulating the transition from the internal combustion engine to electric vehicles, which should result in an even further increase in demand. Therefore, we believe the supply shortage projections for graphite that have already been identified by many third party resources, such as Benchmark Minerals hold firm. Given these tailwinds, we remain firm in our belief in the fundamentals that underlie our business plan. Slide 6 depicts the importance of graphite in the lithium-ion battery as it accounts for approximately 50% of the critical minerals by weight. A typical electric vehicle has around 175 to 210 pounds of amyloid graphite. It's worth noting that lithium makes up less than 10% of lithium-ion battery, perhaps it would be better to refer to the lithium-ion battery as a graphite nickel battery. Turning to Slide 7. We took a different approach than other companies with metal deposits by developing our graphite processing plant first and planning our Coosa deposit second, and we believe there are a number of strategic advantage to this approach. First, it lowers the capital cost and gets us to revenue and positive cash flow sooner. Second, this approach along with securing our supply of natural graphite flake from a non-Chinese source will allow us to take near term advantage of the growing market for batteries and electric vehicles. Lastly, the approach de-risks the permitting process in preparation of the Coosa deposit being brought online in 2028. On to Slide 8. Here we see the value created in processing natural graphite concentrate into an active anode material for batteries or CSPG. The conversion of graphite slate concentrate into CSPG results in a value multiplier of approximately 9 times. This is an additional reason we chose to put the processing plant ahead of the deposit. Namely, we’re able to source graphite concentrate feedstock a non-Chinese source until Coosa deposit is developed and we can take advantage quicker of the value creating this producing CSPG at the Kellyton graphite plant. Turning to Slide 9. Given the tailwinds already mentioned and the strong fundamentals in the battery materials market, demand for the natural battery grade graphite is projected to significantly, resulting in supply shortage for the foreseeable future. We believe putting the Kellyton Graphite Plant first allows us to develop relationships with potential customers, take near term advantage of value created when producing CSPG from the Kellyton plant and process our flake graphite from the Coosa deposit in a higher price environment due to the forecasted supply shortage. Slide 10. As mentioned, graphite has been designated a critical mineral by the US Government. Along with the domestic requirement already mentioned, the Inflation Reduction Act passed in the third quarter provided a 10% refundable tax credit on the cost to produce battery minerals and the IRA removed the limit of electric vehicles that an auto manufacturer can sell before the clean vehicle credit is phased out or eliminated. Based on our discussions, our potential customers are aware of this legislation. As a result, the interest of our potential customers remains strong and has intensified since the passing of this legislation. We believe the domestic requirement, including the significant piece of legislation, will provide a future competitive advantage to Westwater as a domestic producer of CSPG. On to Slide 11. Since the beginning of the construction of our Kellyton graphite project in late 2021, we've had no recordable safety incidents by our contractors or Westwater teammates. This is a significant accomplishment and I would like to thank all of our teammates and contractors to continue keeping safety the number one priority. There is nothing more important than the core value of safety, safety of our teammates, the contractors that work on-site with us and the protection of the environment where we live and operate. Furthering our commitment to safety, in October, we hosted a tour of our Kellyton graphite site for over 100 first responders and local officials. We look forward to continue to engage with our local community. During the quarter, we completed earthwork and site drilling for 132,000 cubic yards of soil moved. We began pouring foundation and as of today, we are substantially complete with three out of five building foundations, which will total over 86,000 square feet when completed. We are also nearing completion of our underground utilities. Pri-fabrication of our buildings progressed during the quarter and in October we began erecting one of our primary buildings. Additionally, our technical teammates visited multiple vendors in Europe that are manufacturing our long lead time equipment prior to shipments, and we’ve begun receiving some of those equipment. We continue to make strong construction progress amidst supply chain challenges and expect to begin testing and commissioning midyear of 2023, and expect commissioning into the second half of 2023. We will look to provide a more definitive update related to testing, commissioning and operational startup of the Kellyton Graphite Plant as we work through the construction next year. Regarding our Coosa graphite deposit on Slide 12. In April 2022, we completed our exploration drilling program and therefore began preparing a resource model and technical report, which is nearing completion. We expect to provide an update on the resource at the Coosa deposit by the end of the year once the resource model and technical report is finalized. I'm extremely proud of the Westwater team and their hard work and the significant progress we have made. We look forward to future contributions to advance our graphite business. Now I'd like to turn it over to our Chief Financial Officer, Mr. Steve Cates.

Thank you, Chad, and good morning, everyone. Slide 13. Westwater finished the third quarter with a cash balance of $100 million and no debt. Our strong financial position has allowed us to continue to advance our graphite business, including the construction of Phase I of the Kellyton graphite processing plant. Since beginning construction of Phase I, we have incurred over $50 million of the estimated costs of $202 million. Management continues to aggressively seek out additional sources of capital funding. As stated previously, we have not and are not currently limiting the form or source of potential funding for Phase I. We continue to focus on executing our business plan, and management is currently having discussions with a number of third parties under NDAs related to financing. While the equity and debt markets continue to experience volatility in an environment marked by rising interest rates and high inflation, we continue to diligently work to close the funding gap for the construction of Phase I of the Kellyton plant. Market uncertainty and tightening in the capital markets has impacted our target of raising additional capital by year end. However, we are still working towards securing that funding within the next few months. Westwater's cash position and no debt provides us the flexibility to diligently evaluate potential funding opportunities focusing on securing the lowest cost of capital. Turning to the financial summary on Slide 14. Detailed discussion of these items is included in our Form 10-Q filed yesterday, as well as our third quarter press release. However, I want to point out a couple of items on this slide. First, net cash used in all operating activities was approximately $8.6 million for the first nine months of 2022 as compared with $13 million for the same period in 2021. The approximate $4.5 million decrease in cash used for operations was primarily due to reduced product development expenses and the absence of any costs related to our arbitration against the Republic of Turkey. Second, the cash used in investing activities for the first nine months of 2022 totaling $32 million was related to the ongoing construction of Phase I of the Kellyton graphite processing plant. Third, product development costs decreased $1.6 million during the third quarter compared to the same quarter in 2021. Last year, we had incurred costs to complete our definitive feasibility study for Phase I and our pilot program. As mentioned earlier on the call, we continue to provide samples of our battery grade products for shipment to and evaluation by potential customers. Fourth, net loss for the third quarter of 2022 was $3.5 million or $0.07 per share compared to a net loss of $4.6 million or $0.13 per share for the third quarter of 2021. The $1.1 million reduction in net loss was due primarily to lower product development costs and lower arbitration costs. These decreases were partially offset by higher G&A expenses as we continue to build out our team and the absence of the unrealized gain recorded in the third 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 securities for cash proceeds in the fourth quarter of 2021. With that, I'll turn it back to you, Chad.

Thank you, Steve. Now to slide 15. We continue to add to our leadership team. In October, Frank Bakker joined the Westwater team as our Vice President and General Manager of Alabama Graphite Products. Mr. Bakker has assumed management responsibility for construction, commissioning and operation of the Kellyton Graphite Plant. He brings to Westwater extensive experience in engineering, project management and plant operations for large scale facilities that produce a wide variety of industrial products. I am grateful to have him and his leadership team at Westwater. On to Slide 16. Simply put our core values set around the pillars of safety, environmental and financial stewardship, and strong corporate governance. We are committed to conducting our business with integrity, keeping our teammates safe and protecting the environment where we operate and live. Before opening the call to questions, I want to reiterate that the fundamentals at the battery materials market are strong. In addition, auto makers are working to meet the growing demand of customers for electric vehicles and now that growth is supported by the IRA's directive to secure a US domestic supply of graphite for the batteries. As a result, we believe in and are committed to our business plan. We're encouraged by the strong progress made at the construction of the Phase 1 of the Kellyton Graphite Plant. We received positive customer feedback on our battery products and we are seeing an intensified interest in US produced battery minerals and potential customers as a result of the IRA. Thank you for your continued interest in Westwater and your time today. 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 Rich Beaven from Signia Capital.

Just curious about, I know, Syrah is building a facility in Louisiana. And can you give us a little bit of color as it relates to any concerns about possible oversupply for process graphite as a result of that plant, or just curious as to what your thoughts are there?

I think as we look out at the expected market demand for anode materials with 14 giga plants announced for the United States in addition to the existing Tesla plant, we think that the benchmark forward forecast of a significant shortage in anode materials is going to be -- proved to be accurate. So while we fully expect there is going to be other producers here in the United States, we don't see that changing the fundamental demand supply equation.

And also any consideration besides graphite, any other critical metals that you would consider moving towards, in addition to the graphite business?

At the present time, we are fully focused on developing our Kellyton graphite processing plant. Can't speculate as to what the future might hold, but that's where our focus is today.

And when the plant is fully operational, as it relates to -- because I think you mentioned your Coosa deposit won't be permitted and ready for a good period of time after your processing plant is up and running. Any thoughts on sourcing where you'd likely source material to run through the plant?

So as we have previously said, we have a third party non-Chinese source of natural flat graphite concentrate under contract for Kellyton. We do have an NDA in place with that entity, so we are not able to disclose any additional information about that. But we feel confident that we have adequate concentrate supplies for Kellyton.

Can you give us an idea, would that be -- I'm assuming it wouldn't be North American source, so I'm assuming it's probably Africa. Would that be accurate?

We're unable to comment.

The next question comes from Dmitry Silversteyn from Water Tower Research.

Quick question for you. You talked about the 27 potential customers that are evaluating your products currently. Can you talk about sort of what the evaluation process is in terms of how long it typically takes? And are any of these evaluations at the point where we can get some positive announcements before the end of the year or the next, let's call it, two, three months?

I think the interesting thing is, earlier in our presentation, we talked about the value that's created in converting natural flake graphite into CSPG of approximately 9 times. The reason that value is there and it's created and customers are willing to pay for it is, because each customer has a little bit unique spec. And so as we work with customers through the evaluation process, we will provide our products that we have. And they'll come back and want to select an additional sample, maybe a different size, different tap density, different things that work for their application. And so that process is an iterative process, it takes time, it really is an engineered final product that they are willing to pay that value multiplier for. And so the timeline is a little bit different with each customer. Their process of going through in testing and evaluating the product can be different. And so I think because of the forecast demand shortages, the IRA legislation with domestic requirement, it's really hard to say how that timeline is going to be changed or shifted going forward. So really can't comment on exactly definitive dates other than we continue to work towards, having more LOIs in place ahead of the plant coming online into operations.

And then second question regarding your resource model that you're building for your Coosa plan or your Coosa resource, I should say. You talked about this being done or being published before the end of the year. Is that still sort of the target and are you in the process of actually evaluating the results, or are you still in the drilling and the data collection phase?

We've completed all our drilling that was completed early last year or early this year, and gathered all that data to put into the resource model. We're still on track to have that resource model completed by the end of the year, and we expect to provide a more definitive update as we get that in.

And then final question, you mentioned the [graphite] areas in your expenditures being attributed to the litigations related to the Turkey acid seizure, however, you want to call it, nationalization. I know you guys sort of won the international court decision. But can you update us on sort of where the process is currently and what, if anything, can materialize in the near to midterm future?

Dmitry, just one point of clarification, a final decision on that has not been met. There was hearings done in the third quarter of 2021. The International Court of Arbitration had a goal of putting it out and their final decision in a year. We are still awaiting that right now. And once we have some definitive on that, we'll provide more of an update. But we do not -- they do not have a final decision yet.

So once the decision is rendered sometime, I think it was a year from and of last year but before the end of this year or early into next year, what would be the next steps?

The next steps would be updating obviously everybody on what that decision is. And dependent upon that there could be more to come or that could be the final decision.

The next question comes from Dale Miller from Morgan Stanley.

A couple of questions. I'm trying to figure out how you get from here to there. Do you have final costs, what it's going to cost to actually build the plant and get you into production and revenue production? So that's question one. Well actually, I'll just kind of segment it out. So how much of the cost do you get from here to there, how much more capital does the company need to be able to get into operations?

So the estimated budget currently is $202 million to complete Phase I in totality. Through 9/30, we had incurred over $50 million of that $50.5 million, with a $100 million [Technical Difficulty]. So there's a delta there that we're working to secure that financing.

And specific to kind of what you're doing there, I know there was some grant funding in the package last year specifically pointed to battery and other technology. Has the company been able to obtain any of that, any decisions on how it's getting handed out, et cetera?

So I think, the natural graphite industry here in the US is really an emerging market, that is in process of being stood up. In Westwater, we're trying to participate in that. And so any legislation or anything that comes out of government agencies that help stand up this industry, we are very support of. Regarding the Department of Energy, their awarding of grants or any of their programs, we really don't have any comment on how they administer those programs or the timing. What I can say is that we continue to execute on our business plan and are excited about the $100 million we have on the balance sheet and no debt at this time.

So the grants that have been handed out, I'm not seeing any debt on your balance sheet. So of the grants that are already out, your company did not receive any yet. Is that correct? That's not included in the $100 million…

Correct. When we secure the additional funding we need, we will definitely provide an update to investors at that time when we have some more definitive. But, you're correct.

So given capital markets here, which are obviously not a kind environment to any growth company. I noticed this huge increase in share count over the past 12 months. Is that just an ATM offering that you are actually going to market and selling to stock an ongoing basis? And are you selling that at this time in this environment, are you continuing the ATM, which it sounds like is what happened before at least?

The cash balance we have had, we were able to take advantage of raising money in the equity markets at a low cost to get the business where it is today. Obviously, as a [prerequisite] revenue to company, there are different ways we can try to take advantage in the capital markets in the past but the high liquidity in our stock was an opportunity. As I said earlier on the call, we are not limiting a source of that funding right now. I think it would be with a tightening environment by the Fed. I think it wouldn't be prudent to take anything off the table. However, we think with $100 million on the balance sheet and no debt, it comprises the flexibility and some time to really evaluate potential financing sources.

[Operator Instructions] Our next question comes from Debra Fiakas from Crystal Equity Research.

So first, let me congratulate you and everyone else at Westwater for your fantastic safety record. I've been on a few of these calls and that isn't always the case. Sometimes there is accidents and no one likes to hear that. So congratulations on what must be really meticulous management in order to keep everybody safe. I was wondering if we could maybe extend the discussion just a little bit on the financing, the Department of Energy, as mentioned earlier in their grants. But they also make construction loans. And I was wondering, based on the research that you have been doing and the conversations you have been having, could you maybe give us a little bit of an update and some color on what your current thinking is on equity versus loans? Do you have any sort of preferences or thoughts on what's the best course when it comes time for it?

Yes, I think we have said before we are not limiting ourselves to any potential source of financing. So all of that is on the table. We do think with $100 million on the balance sheet at 9/30, $50 million of the project already incurred, we effectively have just shy of probably two thirds of the project on the balance sheet or spent that some form of debt makes a lot of sense. But we are in a rising rate environment, so we need to be diligent in the process and make sure that the terms of the financing arrangement are not only beneficial today but also something that can be beneficial in the future and not impair our future growth plans beyond Phase I. And so there's a holistic approach we need to take and be diligent in that process. And are happy that we still have a strong balance sheet that allows us the flexibility to go through that process.

So let's talk about the other side of it then, the spending, the pace of spending. We saw of course in your quarterly report the CapEx spending in the third quarter. Will we see about the same pace of CapEx spending and operating cash usage in the fourth quarter, or will it speed up a bit?

From an operating cash usage, that's non-Phase I capital spend. The team is being very diligent on how do we spend money, control, use of cash, focusing on what do we need right now without putting risk to the business on executing our growth plan and bringing the plan online. So we're very diligent in that process and we'll continue to be so. Regarding the capital spending, there's ebbs and flows in a construction project where early on it was a lot of progress payments. Now we've completed some earth work, and that's going to ebb and flow. So I don't think you can look at a construction project of this size and look at historical spending and say that that's indicative of what next quarter will be or the quarter after that. It's going to ebb and flow. And there will be obviously additional cash to be spent next year as we move closer into operations and testing and commissioning.

So maybe let's just take a look at it from a different vantage point. You started construction on one building, so there's probably something to see rising up above the ground and there are three foundations that are in the works or near completion. What would be the pace, and let's just pretend for a moment that Alabama, weather holds out and it remains favorable. What would be the pace of seeing the construction start on those other two foundations, and what would be the pace or timing of the construction of the fourth and the fifth foundation?

The pace, I will tell you, it's going to be as fast as we can go, to answer it bluntly. But just like Steve said in regards of the markets of ebb and flow and the schedules ebb and flow when we're constantly looking at them every single week, if not on daily basis. So we expect the foundation pace and building erection pace to pick up over the next quarter.

In other words, it's going at a faster pace right now than it was say in the third quarter.

Steel is going up in the air as quickly as we can get it up there.

Well, that's a good thing because it sounds like with your trip or someone's trip to see the equipment that it's very near ready for shipment. Is that the case? You said the long lead items you went to see them and watch them in operation. Did you actually watch your own machine working or did you just simply watch a model? I was kind of curious as to what you got to see.

No, the team took the time to go to Europe to inspect our machines. So they were -- it was our equipment as well as to watch them run and perform. And to your earlier question, we are already receiving parts of those equipment as of now, but we expect to continue to see that pickup the pace going into the fourth quarter as well.

The next question is to follow-up from Rich Beaven from Signia Capital.

Just curious on some more details once Phase I of the processing plant is complete. Can you give us an idea on throughput and what your IRR assumptions are, once we are really hitting our stride there with the completion of Phase I?

So last year when we put out the results of our DFS for Phase I, throughput is about 7,500 metric tons per year, split between our primary product of CSPG as well as [SPG5], and the IRR that we put out then was approximately 15% on an 8% discount. However, one of the things that does not include is the 10% tax reduction credit that was mentioned related to the Inflation Reduction Act. So we have not put out impacts to that, but obviously if your cost of goods sold is being reduced by a cash tax refund that actually helps.

And the assumptions around with respect to end product pricing, is that assumed as to where we are today or is that extrapolated at a bit higher price?

So we are not specific on those assumptions used, but I will say that they were based upon third party price forecast. It's not a commodity that has a forward price that you would find in oil, gold or other commodities. And so therefore, we had to look at multiple sources and kind of take an average of those based upon our product.

And then finally…

It's a forward curve, it's not today's spot price necessarily, but it's based upon third party publications.

I'm assuming that a higher price than what we have quoted today. Would that be right?

A lot of the forward prices that are being put up by pricing publications right now like Benchmark Minerals and stuff are forecasting a higher price environment in the future as the supply shortage increases.

And then finally, just could you give us some more color on Coosa? What would be the cost to bring that deposit into production? And then can you give us any details as it relates to purity or flakes size, what the life of mine would potentially be as well?

So as we mentioned, Rich, we just completed our drilling program. We are in the process of putting those results into the resource model, evaluating that. And from that, then we will develop our exact mine plan and design. And at that point, we will really start being able to put pen to paper, come up with a capital estimate and we can -- we'll be updating the market in the future. First step will be just putting out the results of this resource model. And then we need to work through the steps on developing the mine plan, which then helps drive permeating process, what we need for permits. And so it's really a staged approach that we need to work through.

And that will take maybe [Technical Difficulty] get those results in the commentary surrounding that out there?

So we're looking to put out results on the resource model by year end. But the rest of the steps, we'll provide guidance as it becomes available or information as we work through that process going forward.

The next question comes from Michael Porter from Porter, LeVay & Rose.

Chad, can you give us a little color about what you're worried about as far as supply chain and weather, and how it'll affect your timetable for the plant?

We have looked at that and built that into -- any of that into our schedule. As of right now, the delivery of our long lead tight items, they're on track. As we mentioned earlier, we sent a team to Europe to do inspections. We'll continue to do so, but it's tracking as we expected.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back to Terence Cryan for any closing remarks.

Thanks everyone for joining us this morning. We really appreciate your interest in our company. We look forward to keeping in regular touch with all of our stakeholders. So we'll be in touch shortly. Thanks again. Good day.