WWR 10-Q
Westwater Resources, Inc. (WWR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
Or
For the transition period from to
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
(State of Incorporation) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices, Including Zip Code)
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol(s) |
| Name of Each Exchange on Which Registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer ☐ | Accelerated Filer ☐ | |
Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of Each Class of Common Stock | Number of Shares Outstanding | |
Common Stock, $0.001 par value |
WESTWATER RESOURCES, INC.
TABLE OF CONTENTS
7
2
DEFINITIONS
When used in this Form 10-Q, the following terms have the meaning indicated.
Term | Meaning |
Alabama Graphite | Alabama Graphite Company, Inc., an Alabama corporation and wholly owned subsidiary of Westwater Resources. |
Annual Report | Westwater Resources, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021. |
AGP | Alabama Graphite Products, LLC, an Alabama limited liability company and wholly owned subsidiary of Westwater Resources. |
ASC | FASB Accounting Standards Codification. |
ASU | FASB Accounting Standards Update. |
ATM Offering Agreement | Controlled Equity Offering Sale Agreement between Westwater Resources and Cantor Fitzgerald & Co. dated April 14, 2017. |
Cantor | Cantor Fitzgerald & Co. |
Coosa Graphite Deposit | The Company’s graphite mineral deposit located near Rockford, Alabama. |
EU Critical Raw Minerals List | The list of raw materials that are crucial to the economy of the European Union published by the European Commission. |
Inducement Plan | The Employment Inducement Incentive Award Plan. The Inducement Plan provides for the grant of equity-based awards, including restricted stock units, restricted stock, performance shares and performance units, and its terms are substantially similar to the Company’s 2013 Omnibus Incentive Plan. |
Kellyton Graphite Plant | The Company’s planned battery-grade graphite processing facility near Kellyton, Alabama. |
FASB | The Financial Accounting Standards Board. |
graphite | A naturally occurring carbon material with electrical properties that enhance the performance of electrical storage batteries, listed on the U.S. Critical Minerals List and the EU Critical Raw Materials List. |
Gross acres | Total acreage of land under which we have mineral rights. May include unleased fractional ownership. |
Lincoln Park | Lincoln Park Capital Fund, LLC. |
U.S. Critical Minerals List | The list of critical minerals that are crucial to the economy of the United States of America published by the Department of Interior. |
vanadium | A rare-earth metal used as a strengthening alloy in steelmaking, and in certain types of batteries, listed on the U.S. Critical Minerals List. |
Westwater Resources | Westwater Resources, Inc. |
2020 Lincoln Park PA | Purchase Agreement dated as of December 4, 2020 between Westwater Resources and Lincoln Park Capital Fund, LLC. |
USE OF NAMES
In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “WWR,” “Westwater,” “Westwater Resources,” or the “Company” refer to Westwater Resources, Inc. and its subsidiaries.
3
CURRENCY
The accounts of the Company are maintained in U.S. dollars. All dollar amounts referenced in this Quarterly Report on Form 10-Q and the consolidated financial statements are stated in U.S. dollars.
4
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(expressed in thousands of dollars, except share amounts)
(unaudited)
| September 30, |
| December 31, | |||
2022 | 2021 | |||||
ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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Prepaid and other current assets |
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Total Current Assets |
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Property, plant and equipment, at cost: |
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Property, plant and equipment |
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Less: Accumulated depreciation |
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Net property, plant and equipment |
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Operating lease right-of-use assets |
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Other long-term assets |
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Total Assets |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
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Accrued liabilities |
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Operating lease liability, current |
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Total Current Liabilities |
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Operating lease liability, net of current |
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Other long-term liabilities |
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Total Liabilities |
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Commitments and Contingencies (see note 8) |
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Stockholders’ Equity: |
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Common stock, |
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Issued shares - |
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Outstanding shares - |
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Paid-in capital |
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Accumulated deficit |
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Less: Treasury stock ( |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
| $ | |
| $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in thousands of dollars, except share and per share amounts)
(unaudited)
| For the Three Months Ended | For the Nine Months Ended | ||||||||||
September 30, | September 30, | |||||||||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Operating Expenses: |
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Product development expenses | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Exploration expenses | ( | ( | ( | ( | ||||||||
General and administrative expenses | ( | ( | ( | ( | ||||||||
Arbitration costs | — | ( | ( | ( | ||||||||
Mineral property expenses | ( | ( | ( | ( | ||||||||
Depreciation and amortization | ( | ( | ( | ( | ||||||||
Total operating expenses | ( | ( | ( | ( | ||||||||
Non-Operating Income: |
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Unrealized gain on equity securities |
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Other (expense) income, net | ( | | ( | | ||||||||
Total other (expense) income |
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Net Loss | $ | ( |
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BASIC AND DILUTED LOSS PER SHARE | ( | ( | ( | ( | ||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in thousands of dollars)
(unaudited)
For the Nine Months Ended September 30, | ||||||
| 2022 |
| 2021 | |||
Operating Activities: |
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Net loss |
| $ | ( | $ | ( | |
Reconciliation of net loss to cash used in operations: |
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Non-cash lease expense |
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Depreciation and amortization |
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Stock compensation expense |
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Unrealized gain on equity securities | — | ( | ||||
Effect of changes in operating working capital items: | ||||||
(Increase) decrease in prepaids and other assets |
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Increase in payables and accrued liabilities |
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Net Cash Used In Operating Activities |
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Cash Flows From Investing Activities: |
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Proceeds from PPP loan escrow |
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Building deposit | — | ( | ||||
Capital expenditures |
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Net Cash Used In Investing Activities |
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Cash Flows From Financing Activities: |
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Issuance of common stock, net |
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Payment of minimum withholding taxes on net share settlements of equity awards |
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Net Cash Provided By Financing Activities |
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Net (decrease) increase in Cash, Cash Equivalents and Restricted Cash |
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Cash, Cash Equivalents and Restricted Cash, Beginning of Period |
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Cash, Cash Equivalents and Restricted Cash, End of Period |
| $ | | $ | | |
Supplemental Non-Cash Information with Respect to Investing and Financing Activities: |
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Accrued capital expenditures (at end of period) | | — | ||||
Total Non-Cash Investing and Financing Activities for the Period |
| $ | | $ | — | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(expressed in thousands of dollars, except share amounts)
(unaudited)
Nine months ended September 30, 2022 | Common Stock | Paid-In | Accumulated | Treasury | |||||||||||||
Shares | Amount | Capital | Deficit | Stock | Total | ||||||||||||
Balances, December 31, 2021 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
Net loss |
| — |
| — | — |
| ( |
| — |
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Common stock issued, net of issuance costs |
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Stock compensation expense and related share issuances, net of shares withheld for payment of taxes |
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Minimum withholding taxes on net share settlements of equity awards | — | — | ( | — | — | ( | |||||||||||
Balances, September 30, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
Three months ended September 30, 2022 | |||||||||||||||||
Balances, June 30, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Net loss |
| — | — |
| — |
| ( |
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Common stock issued, net of issuance costs |
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Stock compensation expense and related share issuances, net of shares withheld for payment of taxes |
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Balances, September 30, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
Nine months ended September 30, 2021 | Common Stock | Paid-In | Accumulated | Treasury | |||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Stock |
| Total | ||||||
Balances, December 31, 2020 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
Net loss |
| — |
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| ( |
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Common stock issued, net of issuance costs |
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Stock compensation expense and related share issuances, net of shares withheld for payment of taxes | |
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Minimum withholding taxes on net share settlements of equity awards |
| — |
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| ( |
| — |
| — |
| ( | |||||
Balances, September 30, 2021 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
Three months ended September 30, 2021 | |||||||||||||||||
Balances, June 30, 2021 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Net loss |
| — |
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| ( |
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Common stock issued, net of issuance costs |
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Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes |
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Balances, September 30, 2021 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for Westwater Resources, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. The interim condensed consolidated financial statements are unaudited. In the opinion of management, all adjustments (which are of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for any other period including the full year ending December 31, 2022.
Significant Accounting Policies
Our significant accounting policies are detailed in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements within our Annual Report.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to estimate lifetime expected credit losses and recognize an allowance against the related instruments. For available for sale debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. The adoption of this update, if applicable, will result in earlier recognition of losses and impairments. ASU 2016-13 will be effective for interim and annual periods beginning after December 15, 2022.
In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to ASC 326, Financial Instruments – Credit Losses”, which clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842, Leases. ASU 2018-19 will be effective for interim and annual periods beginning after December 15, 2022.
The Company is currently evaluating ASU 2016-13 and ASU 2018-19 for the potential impact of adopting this guidance on its financial reporting.
2. LIQUIDITY
The Company last recorded revenues from operations in 2009. Since 2009, the Company has relied on equity financings, debt financings and asset sales to fund its operations. The Company expects to rely on debt and equity financings to fund its operations for the foreseeable future.
During the first nine months of 2022, the Company continued construction activities related to the Kellyton Graphite Plant. The Company also continued its exploration project to investigate the size and extent of both graphite and vanadium mineral concentrations at the Coosa Graphite Deposit. Drilling was completed in April 2022 and the Company expects to complete a resource model by the end of the year 2022.
On September 30, 2022, the Company’s cash balance was approximately $
9
Management believes the Company’s current cash balance is sufficient to fund its planned non-discretionary expenditures through the fourth quarter of 2023. The Company has in place the ATM Offering Agreement and the 2020 Lincoln Park PA, both of which could be used to support construction of Phase I of the Kellyton Graphite Plant and the Company’s planned non-discretionary expenditures. While the Company has been successful in the past in 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. Stock price volatility, rising interest rates, inflation and generally uncertain economic conditions could significantly impact the Company’s ability to raise funds through equity or debt financing. Further, market conditions, including but not limited to, inflation, labor shortages and supply chain disruptions could also adversely impact the planned cost and the construction and commissioning timeline of Phase I of 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 expects to be able to fund the Company’s non-discretionary expenditures with the Company’s current cash balance, however in such instance, the Company may be required to change its planned development strategies related to the Coosa Deposit and Phase I of the Kellyton Graphite Plant, including the construction and commissioning timeline of Phase I of the Kellyton Graphite Plan, or putting the construction of Phase I on hold until additional funding is obtained.
3. PROPERTY, PLANT AND EQUIPMENT
Net Book Value of Property Plant and Equipment at September 30, 2022 | |||||||||
(thousands of dollars) |
| Alabama |
| Corporate |
| Total | |||
Mineral rights and properties | $ | | $ | — | $ | | |||
Other property, plant and equipment |
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Construction in progress | | — | | ||||||
Total | $ | | $ | | $ | | |||
Net Book Value of Property Plant and Equipment at December 31, 2021 | |||||||||
(thousands of dollars) |
| Alabama |
| Corporate |
| Total | |||
Mineral rights and properties | $ | | $ | — | $ | | |||
Other property, plant and equipment |
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Construction in progress | | — | | ||||||
Total | $ | | $ | | $ | | |||
Construction in Progress
Construction in progress represents assets that are not ready for service or are in the construction stage. Assets are depreciated based on the estimated useful life of the asset once it is placed in service.
During the first quarter of 2022, the manufacturing of certain equipment commenced, for which the Company made cash deposits of $
10
Impairment of Property, Plant and Equipment
The Company reviews and evaluates its long-lived assets for impairment on an annual basis or more frequently when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. For the nine months ended September 30, 2022 no events or changes in circumstance are believed to have impacted recoverability of the Company’s long-lived assets. Accordingly, it was determined that
4. COMMON STOCK
Common Stock Issued, Net of Issuance Costs
December 2020 Purchase Agreement with Lincoln Park Capital Fund, LLC
On December 4, 2020, the Company entered into the 2020 Lincoln Park PA with Lincoln Park to place up to either $
The 2020 Lincoln Park PA specifically provides that the Company may not issue or sell any shares of its common stock under the agreement if such issuance or sale would breach any applicable rules of the NYSE American Stock Exchange (“NYSE American”). In particular, NYSE American General Rule 713(a) provides that the Company may not issue or sell more than
Lincoln Park has no right to require the Company to sell any shares of common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to certain conditions. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the 2020 Lincoln Park PA if it would result in Lincoln Park beneficially owning more than
Since inception, the Company has sold
During the three and nine months ended September 30, 2022, the Company did
Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co.
On April 14, 2017, the Company entered into the ATM Offering Agreement with Cantor acting as the sales agent. Under the ATM Offering Agreement, the Company may from time to time sell shares of its common stock in “at-the-market” offerings. The Company pays Cantor a commission of up to
During the three and nine months ended September 30, 2022, the Company sold
11
for net proceeds of $
Sales made under the ATM Offering Agreement are made pursuant to a prospectus supplement filed pursuant to Rule 424(b)(5), which registered for sale up to a total of $
As of September 30, 2022, the Company has received total gross proceeds of $
5. STOCK-BASED COMPENSATION
Stock-based compensation awards consist of stock options, restricted stock units and bonus shares issued under the Company’s equity incentive plans, which include the 2013 Omnibus Incentive Plan (the “2013 Plan”) and the Amended and Restated 2004 Directors’ Stock Option and Restricted Stock Plan (the “2004 Directors’ Plan”). Upon approval of the 2013 Plan by the Company’s stockholders on June 4, 2013, the Company’s authority to grant new awards under all plans other than the 2013 Plan was terminated. On July 18, 2017, April 18, 2019, April 28, 2020, and May 21, 2021, the Company’s stockholders approved amendments to the 2013 Plan to increase the authorized number of shares of common stock available and reserved for issuance under the 2013 Plan by
As of September 30, 2022, shares available for future issuances under the 2013 Plan were
In addition to the plans above, on May 9, 2022, the Board of Directors adopted the Inducement Plan and on May 13, 2022, the Company filed a registration statement on Form S-8 to register an aggregate of
12
Stock Options
Stock options are valued using the Black-Scholes option pricing model on the date of grant. The Company accounts for forfeitures upon occurrence.
The following tables summarize stock options outstanding and changes for the nine months ended September 30, 2022:
September 30, 2022 | September 30, 2021 | |||||||||
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Number of | Average | Number of | Average | |||||||
Stock | Exercise | Stock | Exercise | |||||||
Options | Price | Options | Price | |||||||
Stock options outstanding at beginning of period |
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Granted |
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Expired |
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Stock options outstanding at end of period |
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Stock options exercisable at end of period |
| | $ | |
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The weighted average remaining term for stock options outstanding as of September 30, 2022, is approximately
The following table summarizes stock options outstanding and exercisable by stock option plan at September 30, 2022:
Outstanding Stock Options | Exercisable Stock Options | |||||||||
| Number of |
| Weighted |
| Number of |
| Weighted | |||
Outstanding | Average | Stock Options | Average | |||||||
Stock Option Plan | Stock Options | Exercise Price | Exercisable | Exercise Price | ||||||
2004 Plan |
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2004 Directors’ Plan |
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2013 Plan |
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As of September 30, 2022, the Company had less than $
13
Restricted Stock Units
Time-based and performance-based RSUs are valued using the closing share price of the Company’s common stock on the date of grant. The final number of shares issued under performance-based RSUs is generally based on the Company’s prior year performance as determined by the Committee at each vesting date, and the valuation of such awards assumes full satisfaction of all performance criteria.
The following table summarizes RSU activity for the nine months ended September 30, 2022 and 2021:
September 30, | September 30, | |||||||||
2022 | 2021 | |||||||||
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Average | Average | |||||||||
Number of | Grant Date | Number of | Grant Date | |||||||
RSUs | Fair Value | RSUs | Fair Value | |||||||
Unvested RSUs at beginning of period |
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Granted |
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Forfeited/Expired |
| ( |
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Vested |
| ( |
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| ( |
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Unvested RSUs at end of period |
| | $ | |
| | $ | | ||
As of September 30, 2022, the Company had $
6. OTHER (EXPENSE) INCOME, NET
| For the Three Months Ended | For the Nine Months Ended | ||||||||||
September 30, | September 30, | |||||||||||
(thousands of dollars) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Other (expense) income: |
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Foreign exchange loss |
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Interest income | | | | | ||||||||
Other income | | | | | ||||||||
Total other (expense) income, net | $ | ( |
| $ | | $ | ( |
| $ | | ||
As of the three and nine months ended September 30, 2022, the Company recognized $
As of the three and nine months ended September 30, 2022, the Company recognized interest income of $
7. EARNINGS PER SHARE
Basic and diluted loss per common share have been calculated based on the weighted-average shares outstanding during the period. Additionally, potentially dilutive shares of 1,502,221 from the unvested RSUs and the outstanding stock options at the end of the period were excluded from the calculation of earnings per share because the effect on the basic income per share would be anti-dilutive, as the Company had a net loss for the three and nine months ended September 30, 2022.
14
8. COMMITMENTS AND CONTINGENCIES
Future operations on the Company’s properties are subject to federal and state regulations for the protection of the environment, including air and water quality. The Company evaluates the status of current environmental laws and their potential impact on current operating costs and accrual for future costs. The Company believes its operations are materially compliant with current, applicable environmental regulations.
At any given time, the Company may enter into negotiations to settle outstanding legal proceedings and any resulting accruals will be estimated based on the relevant facts and circumstances applicable at that time. We do not expect that such settlements will, individually or in the aggregate, have a material effect on our financial position, results of operations or cash flows.
9. LEASES
The Company’s lease portfolio consists of an operating lease for the corporate office, storage space and equipment. The corporate office lease has a remaining lease term of 0.83 years and includes an option to the lease for
The Company is party to several leases that have terms that are less than a year in length. These include leases for land used in exploration activities, office equipment, machinery, office space, storage and other. The Company has elected the short-term lease exemption allowed under the new leasing standards, whereby leases with initial terms of
The right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities were recognized at the commencement date of the lease based on the present value of lease payments over the lease term using a discount rate of
The components of lease expense are as follows:
| For the Nine Months Ended | |||||
September 30, | ||||||
(thousands of dollars) | 2022 | 2021 | ||||
Operating lease cost | $ | | $ | | ||
Supplemental cash flow information related to the Company’s operating leases is as follows:
For the Nine Months Ended | ||||||
September 30, | ||||||
(thousands of dollars) |
| 2022 | 2021 | |||
Cash paid for amounts included in lease liabilities: |
|
|
| |||
Operating cash flows from operating leases | $ | | $ | | ||
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
| ||
Operating leases | $ | | $ | | ||
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Supplemental balance sheet information related to the Company’s operating leases is as follows:
| September 30, | December 31, | ||||
(thousands of dollars) | 2022 | 2021 | ||||
Operating Leases |
|
|
| |||
Operating lease right-of-use assets | $ | | $ | | ||
Operating lease liability, current | | | ||||
Operating lease liabilities – long term portion |
| — |
| | ||
Total operating lease liabilities | $ | | $ | | ||
Weighted-average remaining lease term and discount rate for the Company’s operating lease are as follows:
For the Nine Months Ended | |||||||
September 30, | |||||||
2022 | 2021 | ||||||
Weighted Average Remaining Lease Term (in years) |
| ||||||
Discount Rate |
| | % | | % | ||
Maturities of lease liabilities for the Company’s operating leases are as follows:
Lease payments by year |
| September 30, | |
(in thousands) | 2022 | ||
2022 (remainder of year) | $ | | |
2023 | | ||
Total lease payments |
| | |
Less imputed interest |
| ( | |
Total | $ | | |
As of September 30, 2022, the Company has $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of the consolidated financial results and condition of Westwater for the three and nine months ended September 30, 2022, has been prepared based on information available to us as of November 9, 2022. This discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included herewith and the audited Consolidated Financial Statements of Westwater for the period ended December 31, 2021 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 a 45-year-old energy technology company focused on developing battery-grade natural graphite materials after 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 nine months of 2022, AGP continued construction activities related to Phase I of the Kellyton Graphite Plant and in April of 2022 Alabama Graphite completed the initial drilling stage of its exploration program to further investigate the size and extent of both graphite and vanadium mineral concentrations at the Coosa Graphite Deposit. The Coosa Graphite Deposit is located near Rockford, Alabama at 32 ° 54’ 30” North and 86 ° 24’ 00” West.
RECENT DEVELOPMENTS
Kellyton Graphite Plant – Construction Update
During the third quarter of 2022, the Company continued construction activities related to Phase I of its Kellyton Graphite Plant, including the completion of earthwork and site grading. Construction activity during the third quarter also included receipt of more long-lead equipment components, and further work on underground utilities, foundations, and the manufacturing of plant buildings.
As previously announced, in April 2022, the Company completed the buildout of its Kellyton administrative offices, hosted a groundbreaking ceremony at the site of the Kellyton Graphite Plant, and selected a general contractor for the construction of the Kellyton Graphite Plant. In June 2022, the Company received its air permit from the Alabama Department of Environmental Management and consequently has all necessary permits to complete the construction of Phase I of the Kellyton Graphite Plant. The Company also applied for its wastewater disposal permit, which will be required before the Kellyton Graphite Plant commences operations. The Company has estimated the cost to construct and commission Phase I of the Kellyton Graphite Plant to be approximately $202 million, of which approximately $50.5 million has been incurred to date. Subject to global supply chain disruptions and challenges, and the Company’s ability to raise the remaining capital necessary to complete Phase I of the Kellyton Graphite Plant, the Company is targeting that it will begin testing and commissioning Phase I of the Kellyton Graphite Plant in mid-year 2023 and expects the testing and commissioning to continue in the second half of 2023.
Coosa Graphite Deposit – Exploration Program
The Company began an exploration project in April 2021 to investigate the size and extent of both graphite and vanadium mineral concentrations at the Coosa Graphite Deposit. In April 2022, the Company completed the drilling activity related to this exploration program and expects to complete a resource model by the end of the year 2022. The exploration program was conducted on approximately 4,000 acres out of a total of the approximately 41,965 acres for which Westwater holds mineral rights. In addition, as part of the resource model, vanadium mineralization is expected to be evaluated using extractive metallurgy techniques to ascertain the economic potential, if any, of the vanadium at the Coosa Graphite Deposit. Subject to its own definitive feasibility study, the availability and costs of financing, and regulatory approval, the Company anticipates that the mining operations related to the Coosa Graphite Deposit will commence by the end of 2028.
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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, 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. Prior to the passage of the IRA, there was a limit placed on manufacturers once a manufacturer had sold at least 200,000 electric vehicles; however, the IRA eliminates the 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.
Westwater has and will continue to support the efforts by the relevant United States governmental agencies 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 and nine months ended September 30, 2022
During the three and nine months ended September 30, 2022 the Company sold 0.8 million and 12.6 million shares of common stock for net proceeds of $1.1 million and $25.6 million, respectively, pursuant to the ATM Offering Agreement, resulting in a cash balance of approximately $100.3 million at September 30, 2022.
See Note 4 to the financial statements for additional information.
RESULTS OF OPERATIONS
Summary
Our net loss for the three months ended September 30, 2022, was $3.5 million, or $0.07 per share, as compared with a net loss of $4.6 million, or $0.13 per share for the same period in 2021. The $1.1 million decrease in our net loss was due primarily to lower product development expenses, arbitration costs, and exploration expenses; offset partially by increases in general and administrative expenses, foreign exchange loss adjustment for our Euro denominated bank account and no unrealized gain on equity securities, which were sold in the fourth quarter of 2021.
Our net loss for the nine months ended September 30, 2022 was $9.4 million, or $0.21 per share, as compared with a net loss of $13.4 million, or $0.42 per share for the same period in 2021. The $4.0 million decrease in our net loss was due primarily to decreases in product development expenses, arbitration costs, and exploration expenses; offset partially by increases in general and administrative expenses, foreign exchange loss adjustment for our Euro denominated bank account and no unrealized gain on equity securities, which were sold in the fourth quarter of 2021.
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Product Development Expenses
Product development expenses for three and nine months ended September 30, 2022, were $0.3 million and $0.9 million, respectively, a decrease of $1.6 million and $4.9 million, respectively, compared to the same periods in 2021. Product development costs for the three and nine months ended September 30, 2022, primarily relate to continued product development, product optimization costs, and continued sample production of battery-grade natural graphite products for evaluation by potential customers. Product development costs in the comparable periods of 2021 were primarily comprised of expenses for our definitive feasibility study related to Phase I of the Kellyton Graphite Plant, which began in February 2021 and was completed in October 2021, and our graphite processing pilot program that was completed in 2021.
Arbitration Costs
During the three months and nine months ended September 30, 2022, arbitration costs decreased by $0.6 million and $2.0 million, respectively, compared to the same periods in 2021. The decrease in arbitration costs during the first three quarters of 2022 was due to lower legal fees related the Company’s request for Arbitration against the Republic of Turkey. During the first three quarters of 2021, the Company incurred legal fees for the hearing on substantive issues, which was conducted during the week of September 13-17, 2021. For further reference, see Part I, Item 3 of the Annual Report.
General and Administrative Expenses
General and administrative expenses for three and nine months ended September 30, 2022, increased by $0.4 million and $1.0 million, respectively, compared to the same periods in 2021. The increases are due primarily to increased personnel costs as the Company continues to build its team.
Exploration Expenses
Exploration expenses for the three and nine months ended September 30, 2022, decreased by $0.1 million and $0.2 million compared to the same periods in 2021. The decrease for the three and nine month periods of 2022 compared to the same periods in 2021 is due primarily to the Company completing the drilling stage of its exploration program in April 2022.
Other Expenses
Other expenses for the three and nine months ended September 30, 2022, increased by $0.3 million and $0.2 million, respectively, compared to the same periods in 2021. The increase for the three and nine month periods of 2022 compared to the same periods in 2021 is due primarily to foreign exchange loss adjustment of $0.6 million for our Euro denominated bank account; offset partially by interest income of $0.4 million on our investment account. A change in the Euro to USD exchange rate of $0.01 results in a foreign exchange adjustment of less than $0.1 million.
FINANCIAL POSITION
Operating Activities
Net cash used in operating activities of $8.6 million for the nine months ended September 30, 2022, represents a decrease of $4.5 million compared to the same period in 2021. The decrease in cash used in operating activities was due primarily to decreases in product development expenses and arbitration costs; offset partially, by a foreign exchange loss on our Euro denominated bank account and higher general and administrative expenses as discussed in Results of Operations.
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Investing Activities
Net cash used in investing activities increased by $31.9 million for the nine months ended September 30, 2022, as compared to the same period in 2021. The increase was a result of 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 nine months of 2022 primarily related to earthwork and site grading, progress payments related to long-lead equipment items, work on underground utilities and foundations, and detailed design engineering and project management activities.
Financing Activities
Net cash provided by financing activities was $25.6 million for the nine months ended September 30, 2022, due to sales of common stock through the Company’s ATM Offering Agreement. Net cash provided by financing activities for the same period in 2021 was $81.7 million. The $56.1 million decrease was due to lower sales activity under the 2020 Lincoln Park PA and the ATM Offering Agreement during the first nine months of 2022 compared to the same period in 2021.
LIQUIDITY AND CAPITAL RESOURCES
The Company last recorded revenues from operations in 2009. Since 2009, the Company has relied on equity financings, debt financings and asset sales to fund its operations. The Company expects to rely on debt and equity financing to fund its operations and business plan for the foreseeable future.
During the first nine months of 2022, the Company continued construction activities related to the Kellyton Graphite Plant. Subject to global supply chain disruptions and challenges, and the Company’s ability to raise the remaining capital necessary to complete Phase I of the Kellyton Graphite Plant, the Company is targeting that it will begin testing and commissioning of Phase I of the Kellyton Graphite Plant in mid-year 2023 and expects the testing and commissioning to continue in the second half of 2023. Also during the first nine months of 2022, the Company continued its exploration project to investigate the size and extent of both graphite and vanadium mineral concentrations at the Coosa Graphite Deposit. Drilling was completed in April 2022 and the Company expects to complete the resource model by the end of the year 2022.
On September 30, 2022, the Company’s cash balance was approximately $100.3 million inclusive of approximately 9.5 million Euros. The Company plans to use its Euro cash balance to pay for long lead equipment denominated in Euros. During the three and nine months ended September 30, 2022, the Company sold 0.8 million and 12.6 million shares of common stock for net proceeds of $1.1 million and $25.6 million, respectively, pursuant to the ATM Offering Agreement. As of September 30, 2022, the Company has $21.2 million remaining available for future sales 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.
Management believes the Company’s current cash balance is sufficient to fund its planned non-discretionary expenditures through the fourth quarter of 2023. The Company has in place the ATM Offering Agreement and the 2020 Lincoln Park PA, both of which could be used to support construction of Phase I of the Kellyton Graphite Plant and the Company’s planned non-discretionary expenditures. While the Company has been successful in the past in 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. Stock price volatility, rising interest rates, inflation and generally uncertain economic conditions could significantly impact the Company’s ability to raise funds through equity or debt financing. Further, market conditions, including but not limited to, inflation, labor shortages and supply chain disruptions could adversely impact the planned cost and the construction and commissioning timeline of Phase I of 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
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of the Kellyton Graphite Plant under the Company’s financing facilities or through alternative financing sources, the Company expects to be able to fund its non-discretionary expenditures with the Company’s current cash balance, however in such instance, the Company may be required to change its planned business development strategies related to the Coosa Deposit and Phase I of the Kellyton Graphite Plant, including the construction and commissioning timeline of Phase I of the Kellyton Graphite Plant, or putting the construction of Phase I on hold until additional funding is obtained.
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 processing industries in the United States; |
| ● | unanticipated geological, processing, regulatory and legal or other problems we may encounter; |
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| ● | 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; |
| ● | the potential effects of the continued COVID-19 pandemic; |
| ● | 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information in our Quarterly Reports.
ITEM 4. CONTROLS AND PROCEDURES
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 Securities and Exchange Commission (“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 September 30, 2022.
Changes in Internal Controls
There were no changes in our internal control over financial reporting during the nine months ended September 30, 2022 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information regarding reportable legal proceedings is contained in Part I, Item 3, “Legal Proceedings,” in our Annual Report. There have been no material changes to the legal proceedings previously disclosed in the Annual Report.
ITEM 1A. RISK FACTORS.
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, except as follows:
Our business could be negatively impacted by inflationary pressures, which may result in increased costs of operations and negatively impact the securities markets generally, which could have a material adverse effect on our ability to access capital.
The U.S. has experienced rising inflation in 2022 and U.S. inflation is currently at a 40-year high. A sustained increase in inflation may continue to raise our costs for labor, services, and materials. Further, our suppliers face inflationary impacts such as the tight labor market and supply chain disruptions, that could increase the costs to construct and commission the Kellyton Graphite Plant, explore and develop the Coosa Graphite Deposit, and our day to day operations. The rate and scope of these various inflationary factors may increase our operating costs materially, which may not be readily recoverable, and have an adverse effect on our costs, operating margins, results of operations and financial condition.
Further, sustained inflation has caused and may continue to cause the Federal Reserve Board to raise the target for the federal funds rate, which correspondingly increases interest rates. Increased interest rates could have a negative effect on the securities markets generally which may, in turn, have a material adverse effect on the Company’s ability to access capital, particularly debt financing, and the market price of equity securities, including the Company’s common stock, which usually decrease as interest rates rise. To the extent that we access debt financing or issue variable interest rate instruments in the future, any increase in interest rates would increase our cost of borrowing and our interest expense.
We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability, an ongoing military conflict between Russia and Ukraine, and record inflation. Our business, financial condition and results of operations could be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine, geopolitical tensions, or record inflation.
In February of 2022, Russian military forces invaded Ukraine, and sustained conflict and disruption in the region is likely. Although the length, impact and outcome of the ongoing military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, higher inflation, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage. We are continuing to monitor the conflict and assessing its potential impact on our business.
The extent and duration of the military action or future escalation of such hostilities, the extent and impact of existing and future sanctions, market disruptions and volatility, and the result of any diplomatic negotiations cannot be predicted. While we expect any direct impacts to our business to be limited, the indirect impacts on the economy and on the mining industry and other industries in general could negatively affect our business and may make it more difficult for us to raise equity or debt financing. In addition, the impact of other current macro-economic factors on our business, which may be exacerbated by the war in Ukraine - including inflation, supply chain constraints and geopolitical events - is likely to have an adverse effect on our business
.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
ITEM 4. MINE SAFETY DISCLOSURES.
ITEM 5. OTHER INFORMATION.
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ITEM 6. EXHIBITS.
Exhibit |
| Description |
3.1 | ||
3.2 | ||
10.1* | ||
10.2* | ||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS: | Inline XBRL Instance Document | |
101.SCH: | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL: | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF: | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB: | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE: | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Indicates management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WESTWATER RESOURCES, INC. | |||||
Dated: November 9, 2022 | By: | /s/ Chad M. Potter | |||
Chad M. Potter | |||||
President and Chief Executive Officer | |||||
Dated: November 9, 2022 | By: | /s/ Steven M. Cates | |||
Steven M. Cates | |||||
Vice President - Finance and Chief Financial Officer | |||||
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