# Westwater Resources, Inc.: Form 10-Q for the period ended Mar 31, 2023 - Company: [Westwater Resources, Inc.](/companies/wwr.md) (CIK 839470) - Form: 10-Q - Filed: 2023-05-10 - Accepted by EDGAR: May 10, 2023, 16:31 ET - Period: 2023-03-31 - Accession: 0001558370-23-009138 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/839470/000155837023009138/wwr-20230331x10q.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/839470/000155837023009138/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2023-03-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.05 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.05 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 49,443,120 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$3.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $34.0m | us-gaap:PaymentsToAcquireProductiveAssets | | Cash and equivalents | at 2023-03-31 | $39.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2023-03-31 | $40.5m | us-gaap:AssetsCurrent | | Total assets | at 2023-03-31 | $160.1m | us-gaap:Assets | | Current liabilities | at 2023-03-31 | $17.8m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2023-03-31 | $19.2m | us-gaap:Liabilities | | Shareholders' equity | at 2023-03-31 | $140.9m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 23,277 characters. The following management’s discussion and analysis of the consolidated financial results and condition of Westwater for the three months ended March 31, 2023, has been prepared based on information available to us as of May 10, 2023. This discussion should be read in conjunction with the unaudited Interim Financial Statements and Notes thereto included herewith and the audited Consolidated Financial Statements of Westwater for the period ended December 31, 2022 and the related notes thereto included in our Annual Report, which were prepared in accordance with U.S. GAAP. This management’s discussion and analysis contains forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth elsewhere in this report. See “Cautionary Note Regarding Forward-Looking Statements” herein. ### INTRODUCTION Westwater Resources, Inc., originally incorporated in 1977, is an energy technology company focused on developing battery-grade natural graphite materials since its acquisition of Alabama Graphite in April 2018. Alabama Graphite holds mineral rights to explore and potentially mine the Coosa Graphite Deposit. During the first three months of 2023, AGP continued construction activities related to Phase I of the Kellyton Graphite Plant. The Coosa Graphite Deposit is located near Rockford, Alabama at 32 ° 54’ 30” North and 86 ° 24’ 00” West. ### RECENT DEVELOPMENTS ### Joint Development Agreement with SK On During the first quarter of 2023, the Company entered into a joint development agreement (“JDA”) with SK On (“SK On”), a leading electric vehicle battery manufacturer, supplying electric vehicle batteries to Ford, Hyundai, Volkswagen and others. Under the JDA, the two companies will work together to develop environmentally responsible, high performance anode material customized for SK On batteries. Upon the successful completion of the development effort, the parties expect to negotiate another agreement that may allow for the sale of potentially all Coated Spherical Purified Graphite (“CSPG”) anode material from the Kellyton Graphite Processing Plant. SK On currently operates two EV battery plants in Commerce, Georgia. The South Korean battery maker is also building three EV battery plants in the U.S. with Ford Motor Co. BlueOval SK (the joint venture between SK On and Ford Motor Co.), and plans to operate two battery plants in Glendale, Kentucky, and one factory in Stanton, Tennessee. SK On recently announced that it has agreed with Hyundai Motor Group to establish an EV battery plant in Bartow County, Georgia, through a joint venture. ### Kellyton Graphite Plant – Construction Update During the first quarter of 2023, the Company continued construction activities related to Phase I of its Kellyton Graphite Plant, including the completion of earthwork and site grading, receipt of additional long-lead equipment components, and further work on underground utilities, and the construction and assembly of plant buildings. As of the date of the filing of this report, all five processing buildings have been completed and are ready for equipment installation to begin. In response to increasing customer demand and market conditions, the Company has completed an optimization study of the original definitive feasibility study for Phase I of the Kellyton Graphite Plant to increase the expected throughput production for Phase I of the Kellyton Graphite Plant. As a result of this optimization study, the Company now expects to more than double the throughput production capacity for Phase I of the Kellyton Graphite Plant of 16,000 metric tons (or mt) per year, and expected CSPG production of 7,500 mt per year. The Company estimates the total costs for Phase I construction to be approximately $271 million. Since inception of the project, and inclusive of liabilities at March 31, 2023, the Company has incurred capital costs of approximately $102.4 million of the cost to construct Phase I of the Kellyton Graphite Plant. ### Graphite and Vanadium as Critical Materials Presently, the United States is almost 100% dependent on imports for battery-grade graphite, which is currently the primary anode material in the lithium-ion batteries that power electric vehicles, smartphones, and laptops, and store power generated from intermittent renewable energy sources. Westwater intends to process natural flake graphite into battery-grade graphite for all types of batteries including lithium-ion batteries. On March 31, 2022, President Biden invoked the Defense Production Act to encourage the domestic production of critical materials, including graphite, for advanced batteries for electric vehicles and clean energy storage. On August 16, 2022, President Biden signed into law the Inflation Reduction Act (“IRA”). This legislation includes an investment of $369 billion in climate programs. The IRA provides a 10% tax credit for the costs of producing certain critical minerals, including graphite and vanadium. This credit is eligible for direct pay and is also transferable to unrelated taxpayers. In addition, a key provision of the IRA that could indirectly benefit the Company is the Clean Vehicle credit. The IRA eliminates the previous limitation on the number of electric vehicles a manufacturer can sell before the Clean Vehicle credit is phased out or eliminated. Further, the IRA sets a minimum domestic content threshold for the percentage of the value of applicable critical minerals contained in the battery of the electric vehicles. As Westwater intends to produce battery grade graphite for lithium-ion batteries to be used in electric vehicles in the United States, management believes the domestic content requirement could provide indirect future benefit to the Company. On April 12, 2023, the U.S. Environmental Protection Agency (the “EPA”) announced new proposed federal vehicle emissions standards that will accelerate the ongoing transition to a clean vehicle’s future. The proposed standards align with commitments made by automakers and U.S. states as they plan to accelerate clean vehicle technologies in the light- and medium-duty fleets in the next 10 to 15 years. Under the light-duty vehicle standards, the EPA will require an increasingly stringent greenhouse gas standard that by model year 2032 would result in an industry-wide average target of 82 grams of carbon dioxide created per mile traveled. This represents a 56 percent decrease from the model year 2026 standard set in 2021. For medium-duty vehicles the EPA is proposing to increase stringency to a target of 275 grams of carbon dioxide per mile by model year 2032, which would represent a 44 percent reduction compared to model year 2026 standard. Car and truck companies are moving to include electric vehicles as an integral and growing part of current and future product lines, leading to an increasing diversity of clean vehicles for consumers. The State of Alabama and local municipalities have entered into incentive agreements with the Company for the siting of the Company’s proposed graphite processing plant in Coosa County, Alabama. The incentive agreements provide certain tax credits and incentives under the Alabama Jobs Act in connection with the construction of the Kellyton Graphite Plant. Westwater has developed graphite-purification technology and advanced product-development processes designed to meet the demands of potential customers for battery-grade graphite materials. Westwater is developing methodologies and constructing facilities intended to produce high purity, battery-grade graphite products at its Kellyton Graphite Plant. These products are designed to serve all major battery sectors. In addition, we believe the processes we intend to use are environmentally sustainable and permittable in the United States, where a robust regulatory environment complements our core values to reliably deliver safe, well-made products to our customers. Westwater has and will continue to support the efforts by the relevant United States governmental agencies, the State of Alabama and local municipalities to ensure that they remain aware of the importance of natural battery-grade graphite, its importance to the nation’s security, and how the Kellyton Graphite Plant and the Coosa Graphite Deposit fit into the critical minerals-equation. ### Equity Financings #### Capital Raises during three months ended March 31, 2023 During the three months ended March 31, 2023 the Company sold 1.5 million shares of common stock for net proceeds of $1.5 million pursuant to the ATM Offering Agreement, resulting in a cash balance of approximately $39.7 million at March 31, 2023. See *Note 4 to the Interim Financial Statements* for additional information. ### RESULTS OF OPERATIONS ### Summary Our net loss for the three months ended March 31, 2023, was $2.4 million, or $0.05 per share, as compared with a net loss of $2.8 million, or $0.08 per share for the same period in 2022. The $0.4 million decrease in our net loss was due primarily to higher interest income earned on our cash balance of $0.6 million and lower exploration costs as well as lower legal costs related to the Company’s arbitration against the Republic of Turkey; partially offset by higher product development and general and administrative expenses. ### Product Development Expenses Product development expenses for the three months ended March 31, 2023, were $0.5 million, an increase of $0.3 million compared to the same period in 2022. Product development costs for the three months ended March 31, 2023, relate primarily to additional sample production of battery-grade natural graphite products for evaluation by potential customers. As the Company works with potential customers through the qualification of its battery-grade natural graphite products, additional samples are required to be prepared, and in some cases, in larger quantities for evaluation and testing by potential customers. ### Exploration Expenses Exploration expenses for the three months ended March 31, 2023 were $0.1 million, a decrease of $0.1 million compared to the same period in 2022. The decrease is due to the Company completing its initial drilling program related to the Coosa Graphite Deposit in April 2022. ### General and Administrative Expenses General and administrative expenses for three months ended March 31, 2023, increased by $0.2 million, compared to the same period in 2022. The increase was due primarily to higher personnel costs that include approximately $0.3 million for severance charges related to the departure of the Company’s former Chief Executive Officer in January 2023. These costs were offset partially by a benefit in stock-based compensation expense related to award forfeitures occurring during the first quarter of 2023. See *Note 5 to the Interim Financial Statements* for additional information on stock-based compensation. ### Arbitration Costs During the three months ended March 31, 2023, there were no arbitration costs. The $0.1 million of arbitration costs in 2022 were legal fees related to the Company’s request for Arbitration against the Republic of Turkey. On March 3, 2023, the arbitral tribunal issued its final award in the proceeding. The tribunal agreed with Westwater that Westwater’s investment in Turkey was protected by the Treaty between the United States of America and the Republic of Turkey concerning the Reciprocal Encouragement and Protection of Investments (the “Treaty”), and that Turkey’s cancellation of the Company’s licenses for the Temrezli and Sefaatli uranium projects owned by Westwater’s Turkish subsidiary, Adur Madencilik Limited Sirketi (“Adur”) amounted to an expropriation of Westwater’s investment in violation of Turkey’s obligations under the Treaty. The tribunal disagreed with Westwater’s projections of what its investment was worth and how much the investment would have returned if Turkey had not cancelled the licenses. The tribunal’s award requires Turkey to pay Westwater a total of approximately $1.3 million in damages, to reimburse Westwater for its fees, expenses and costs of the arbitration amounting to approximately $3.7 million, and to pay interest in an amount yet to be determined. ### Other Income Other income for the three months ended March 31, 2023, increased by $0.6 million compared to the same period in 2022 due to an increase of $0.6 million of interest income in our investment account resulting from higher interest rates. ### FINANCIAL POSITION ### Operating Activities Net cash used in operating activities of $3.0 million for the three months ended March 31, 2023, represents an increase of $0.3 million compared to the same period in 2022. The increase in cash used in operating activities was due primarily to purchases of raw material inventory during the three months ended March 31, 2023 of $2.0 million, compared to no inventory purchases for the same period of 2022. This increase in raw material inventory was offset partially by higher interest income of $0.6 million earned during the first quarter of 2023, and a decrease in prepaid deposits compared to an increase in prepaids and other assets in the first quarter of 2022. ### Investing Activities Net cash used in investing activities increased by $21.8 million for the three months ended March 31, 2023, as compared to the same period in 2022. The increase was a result of higher capital expenditures related to the construction of Phase I of the Kellyton Graphite Plant, which began construction related activities in December 2021. The capital expenditures in the first three months of 2023 included progress payments for equipment, further work on underground utilities, and the construction and assembly of plant buildings. During the same period in 2022, there were deposits of long-lead items and earthwork began in March of 2022. ### Financing Activities Net cash provided by financing activities was $1.4 million for the three months ended March 31, 2023, comprised of sales of common stock through the Company’s ATM Offering Agreement. Net cash provided by financing activities for the same period in 2022 was $15.5 million. The $14.1 million decrease was primarily due to lower sales activity under the 2020 Lincoln Park PA and the ATM Offering Agreement during the first three months of 2023 compared to the same period in 2022. ### LIQUIDITY AND CAPITAL RESOURCES Since 2009, the Company has relied on equity financings, debt financings and asset sales to fund its operations. During the three months ended March 31, 2023, the Company continued construction activities related to the Kellyton Graphite Plant. The Company’s construction related contracts include termination provisions at the Company’s election that do not obligate the Company to make payments beyond what is incurred by the third-party service provider through the date of such termination. In its going concern analysis, the Company considered the construction activity and related costs through the date that the Interim Financial Statements were issued, and the Company’s planned non-discretionary expenditures through May 31, 2024, which, in the aggregate, exceed the cash on hand as of the date of these Interim Financial Statements, excluding external funding opportunities and the Company’s current equity facilities. On March 31, 2023, the Company’s cash balance was approximately $39.7 million inclusive of approximately 0.1 million Euros. The Company plans to use its remaining Euro cash balance to pay for long lead equipment denominated in Euros. During the three months ended March 31, 2023, the Company sold 1.5 million shares of common stock for net proceeds of $1.5 million, pursuant to the ATM Offering Agreement. As of March 31, 2023, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $19,250,000 under the ATM Offering Agreement and has 9.7 million shares of common stock available for future sales pursuant to the 2020 Lincoln Park PA. The Company has historically, and expects to continue to rely on debt and equity financing to fund its operations and business plan until operations commence at the Kellyton Graphite Plant. Along with evaluating the continued use of the ATM Offering Agreement and the 2020 Lincoln Park PA, the Company is considering other forms of project financing to fund the construction of the Kellyton Graphite Plant, including both Phase I and Phase II. The alternative sources of project financing could include, but are not limited to, project debt, convertible debt, or pursuing a partnership or joint venture. If funds are not available to fund the construction of Phase I of the Kellyton Graphite Plant under the Company’s financing facilities or through alternative financing sources, the Company may be required to reduce or severely curtail operations, change its planned business development strategies related to the Coosa Graphite Deposit and Phase I of the Kellyton Graphite Plant, alter the construction and commissioning timeline of Phase I of the Kellyton Graphite Plant, or put the construction of Phase I on hold until additional funding is obtained. If the Company is required to abandon construction and development or alter its intended long-term plans related the Kellyton Graphite Plant, the Company could be required to evaluate the recoverability of its long-lived assets. While the Company has utilized its equity facilities to advance its business plan and has been successful in the past raising funds through equity and debt financings as well as through the sale of non-core assets, no assurance can be given that additional financing will be available in amounts sufficient to meet its needs, or on terms acceptable to the Company. Recent declines in the equity and debt capital markets, rising interest rates, inflation and generally uncertain economic conditions could significantly impact the Company’s ability to access the necessary funding to advance its business plan. Further, on March 13, 2023, the Company filed a prospectus supplement to the Registration Statement and as a result, the Company’s access to the available capacity under the Registration Statement is now subject to General instructions I.B.6 of Form S-3, which limits the amounts that the Company may sell under the Registration Statement. After giving effect to these limitations and the current public float of our common stock, and after giving effect to the terms of the ATM Offering Agreement, we currently may offer and sell shares of our common stock having an aggregate offering price of up to $19,250,000 under the ATOM Offering Agreement, which amount is in addition to the shares of common stock that we have sold to date in accordance with the ATM Offering Agreement under the Registration Statement and prospectus supplements thereto. If our public float increases such that we may sell additional amounts under the ATM Offering Agreement and the Registration Statement, we will file another prospectus supplement prior to making additional sales. ### OFF-BALANCE SHEET ARRANGEMENTS We have no off-balance sheet arrangements. ### CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS With the exception of historical matters, the matters discussed in this report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements regarding the adequacy of funding, liquidity, access to capital, financing activities, the timing or occurrence of any future drilling or production from the Company’s properties, economic conditions, the strategic goals of the business, arbitration matters, costs of Phase I of the Kellyton Graphite Plant and estimated construction and commissioning timeline and completion date, the outcome of the feasibility study and start date for the mining of the Coosa Graphite Deposit, and the Company’s anticipated cash burn rate and capital requirements. Words such as “may,” “could,” “should,” “would,” “believe,” “estimate,” “expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,” “continue,” “project,” “target” and variations of these words, comparable words and similar expressions generally indicate forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, among others: - the spot price and long-term contract price of graphite (both flake graphite feedstock and purified graphite products) and vanadium, and the world-wide supply and demand of graphite and vanadium; - the effects, extent and timing of the entry of additional competition in the markets in which we operate; - our ability to obtain contracts with customers; - available sources and transportation of graphite feedstock; - the ability to control costs and avoid cost and schedule overruns during the development, construction and operation of the Kellyton Graphite Plant; - the ability to construct and operate the Kellyton Graphite Plant in accordance with the requirements of permits and licenses and the requirements of tax credits and other incentives; - the effects of inflation, including labor shortages and supply chain disruptions; - rising interest rates and the associated impact on the availability and cost of financing sources; - the availability and supply of equipment and materials needed to construct the Kellyton Graphite Plant; - stock price volatility; - government regulation of the mining and manufacturing industries in the United States; - unanticipated geological, processing, regulatory and legal or other problems we may encounter; - the results of our exploration activities, and the possibility that future exploration results may be materially less promising than initial exploration results; - any graphite or vanadium discoveries not being in high enough concentration to make it economic to extract the metals; - our ability to finance growth plans; - currently pending or new litigation or arbitration; and - our ability to maintain and timely receive mining and other permits from regulatory agencies. In addition, other factors are described in our Annual Report, and the other reports we file with the SEC. Most of these factors are beyond our ability to predict or control. Future events and actual results could differ materially from those set forth herein, contemplated by or underlying the forward-looking statements. Forward-looking statements speak only as of the date on which they are made. We disclaim any obligation to update any forward-looking statements made herein, except as required by law. ## Controls and procedures As filed, 2,154 characters. ### Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its filings with the SEC is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management has recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply judgment in evaluating the Company’s controls and procedures. During the fiscal period covered by this report, the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023. ### Changes in Internal Controls We have commenced initiatives to improve our enterprise resource planning (“ERP”) system. We believe this new system will enhance our internal control over financial reporting due to increased automation. We will continue to monitor our internal control over financial reporting for effectiveness throughout the transition. Except for our continuous monitoring of the new ERP system, there were no changes in our internal control over financial reporting during the three months ended March 31, 2023 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting. ## Risk factors As filed, 296 characters. An investment in our common stock involves various risks. When considering an investment in us, careful consideration should be given to the risk factors discussed in *Risk Factors in Item 1A* in our Annual Report. There are no material changes to the risk factors described in our Annual Report. Filed May 10, 2023. Source: SEC EDGAR, the filing index for accession 0001558370-23-009138. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.