Westwater Resources, Inc. (AMEX:WWR) Q4 2022 Earnings Call Transcript

Westwater Resources, Inc. (AMEX:WWR) Q4 2022 Earnings Call Transcript March 7, 2023

Operator: Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources, Inc. full-year 2022 results and business update conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. . I would now like to turn the conference over to Frank Bakker, President and CEO. Please go ahead, sir.

Frank Bakker: Thank you, moderator, and thanks to those attending our 2022 year-end business update and results call. I’m excited to lead the company and to have this first earnings call since becoming the CEO of Westwater Resources. With me today is Terence Cryan, our Executive Chairman of the Board; and Steve Cates, our Chief Financial Officer. During this presentation, the forward-looking statements we make are based on management judgments, including, but not limited to, future graphite demand and price forecasts, schedule and cost projections, and economic expectations related to the Kellyton graphite plant, the Coosa graphite deposit, and capital raising activities. These and other similar statements are subject to certain risks and uncertainties of which a description can be found on slide 2 within this presentation and in our 10-K for 2022 and our other SEC filings.

Please read our cautionary statement and realize that actual results may differ materially from what’s discussed today. Slide 3, construction of Phase I of our Kellyton graphite processing plant has been ongoing for over a year. When completed the Kellyton graphite processing plant will provide anode material necessary to support the energy transition. Interest from potential customers is strong, and samples continue to be requested. Recently, Westwater Resources entered into an agreement with an electric vehicle battery producer. Under the agreement, the two companies will work together to ensure that the CSPG expected to be produced at our Kellyton plant can be used as a high-performance anode for their batteries. Subject to those efforts and terms and conditions yet to be negotiated in a future agreement, this agreement allows for the sale of, potentially, all anode material from our Kellyton plant for those batteries.

This is another significant advancement in our graphite business and our engagement with potential customers. And we are anticipating making a joint announcement with our partner later this month. At that time, we expect to be in a position to provide further details. We also hold mineral rights to approximately 42,000 acres across the Alabama Graphite Belt. Once in operations, the Kellyton graphite processing plant and the Coosa deposit represents the first fully vertically integrated domestic battery-grade graphite company in the US. We believe this will provide significant competitive advantages given the passing of the Inflation Reduction Act in 2022 with its domestic content requirements for electric vehicle battery materials. Turning to slide 4, in response to growing demand and customer feedback to increase our planned production capacity, we are pleased to announce that we have completed an optimization study of the Kellyton graphite processing plant, which we believe will significantly improve the economics of the project.

As a result, we now expect to double our throughput capacity in Phase I to approximately 16,000 metric tons per annum, more than doubling our estimated CSPG production to 7,500 metric tons per year. The higher throughput results in an expected increase in the estimated pre-tax NPV, compared to the original DFS of over three times, to $417 million and an increase in the estimated cumulative pre-tax cash flow to $1.9 billion and an increase in estimated pre-tax IRR of 65% to 24.7%. With the optimization, we now estimate the total cost of Phase I to be approximately $271 million. We expect to begin testing and commissioning of Phase I in late 2023, a first production to occur in the first half of 2024, subject to closing the additional funding to complete construction.

Additionally, we expect to spend the additional capital necessary for the Phase I optimization in 2024 and are targeting completion of this optimization and increasing the throughput in the second half of 2024. Slide 5, we also have incorporated the optimization of Phase II at a pre-feasibility level, increasing the planned CSPG production to approximately 40,500 metric tons per year, nearly tripling the expected pre-tax NPV to $2.2 billion, and increasing the estimated cumulative pre-tax cash flow to $10.3 billion and the estimated IRR to 36.3%. The total combined cost of Phase I and Phase II is currently estimated at $736 million. We plan to begin a definitive feasibility study on the Phase II expansion in 2023 and will provide an update once completed.

Turning to Slide 6 for a construction progress update, since the beginning of construction at our Kellyton graphite project in late 2021, we have had zero recordable safety incidents by our contractors and Westwater teammates. This is a significant accomplishment. Safety is and will continue to be our number one core value as well as the protection of the environment where we live and operate. During 2022, we completed the earthwork, the building foundations, and the majority of the underground utilities. Significant progress has been made on the buildings. Two of the major buildings are close to being finished, and the other three buildings will be completed in March, April of this year. Long lead equipment start to arrive at site. And we will start putting the equipment in place in March of this year.

Regarding our Coosa graphite deposit on slide 7, in April 2022, we completed our exploration drilling program and completed our geological model and published a technical report in the fourth quarter, which identified about 3.8 million short tons of graphite, enough to supply the estimated feedstock requirements for the Kellyton graphite processing plant for over 35 years. It’s worth noting that technical report was completed based on drilling approximately 4,100 acres of the approximately 42,000 acres to which we hold mineral rights. We continue to expect the Coosa deposit to come online by the end of 2028, subject to its own definitive feasibility study, obtaining the required permits, and financing. I am extremely proud of the Westwater team, our contractors, the dedication and hard work of all involved to make Westwater Resources successful.

Now, I would like to turn it over to our Chief Financial Officer, Mr. Steve Cates.

Steve Cates: Thank you, Frank, and good morning, everyone. Slide 8, Westwater finished the year with a cash balance of $75.2 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. Regarding financing, we are pleased to announce that we have signed a non-binding, non-exclusive indicative term sheet for $150 million of private debt, which will cover the balance of the current estimated Phase I capital requirements. We are targeting to close on this transaction in the second quarter of this year. Since beginning construction, cash expenditures totaled approximately $55 million related to the Phase I construction.

And we estimate approximately $216 million of cash spend remaining of the now estimated total costs of $271 million, which includes the Phase I optimization. Turning to the financial summary on slide 9, detailed discussion of these items is included in our recently filed Form 10-K as well as our 2022 year-end press release. Net cash used in all operating activities for 2022 was approximately $13.2 million, as compared with $16.9 million for 2021. The $3.7 million decrease in cash used for our operations was primarily due to reduced product development expenses and lower costs related to our arbitration against the Republic of Turkey. Those decreases were offset partially by the gain recognized on the sale of equity securities in 2021 and the purchase of feedstock inventory in the fourth quarter, ahead of beginning testing and commissioning later this year and to produce additional product samples for our customers.

Cash used in investing activities for 2022 totaled $52.8 million and was related to the ongoing construction of Phase I of the Kellyton graphite processing plant. As mentioned previously, product development cost decreased $4.8 million during the current year. In 2021, we incurred costs to complete our definitive feasibility study for Phase I and our pilot program. We continue to operate our pilot program to provide additional samples of our battery-grade products for shipment to and evaluation by potential customers. Lastly, net loss for 2022 was $11.1 million, or $0.25 per share, compared to a net loss of $16.1 million, or $0.49 per share, in 2021. The $5 million reduction in net loss was due primarily to lower product development and arbitration costs and higher interest income earned on our cash balances.

These were partially offset by higher G&A expenses as we continue to build out our team and the absence of the gain recognized in the fourth quarter of 2021 related to equity securities held by Westwater that we received in 2020 with the final sale of our former uranium business. With that, I’ll turn the call back to you, operator, for questions. Thank you.

Operator: Thank you. We will now begin the question-and-answer session. Debra Fiakas, Crystal Equity Research.

Debra Fiakas: Thank you, operator. First, let me offer congratulations to Frank Bakker for his new position. I wish you well in your new role. I, first off, wanted to ask about the optimization plan that you disclosed today. What triggered this study to optimize the plant? What was the impetus to make some tweaks and twinges to the process?

See also 15 Largest Commercial Printing Companies in the World and 12 High Growth Forever Dividend Stocks.

Q&A Session

Frank Bakker: Yeah. Thank you, Debra, for the question. So I think there were two main reasons. The first reason was that there is an increased demand of CSPG material in the domestic market in the US. And the second reason is that if you look at the IRR before we made this optimization and after optimization, the IRR increased from 15% to close to 25%. So that’s also the other reasons why we did the optimization. And it’s good to know that on the optimization, we didn’t change the technology, actually. We only rerouted the process flows and removed the bottlenecks in the facility.

Debra Fiakas: Excellent. That is actually what my next question is. What is the means of the optimization? If it’s just the process flows, are you still going to be working with the same set of equipment that you had previously planned on using? Do you have to add equipment? Is that part of the cost increase?

Frank Bakker: Yes, you’re correct. So we’re only going to reroute the process flows. We’re going to reuse — we’re going to use the existing equipment. And we need to add additional equipment to reach that capacity. That’s correct.

Debra Fiakas: Then I wanted to move on to the cost increase. You mentioned in the annual filing that the added costs really arise from, in part, the optimization changes as well as — there was a hint at delays and cost overruns and maybe some price increases due to inflation. I just wondered if you could give us a little bit of color on the relative contribution of each of those three sources. Are the cost increases principally the optimization plan? Or what part of it did the delays and cost overruns play?

Frank Bakker: Yeah. I think it’s mainly the optimization project that has driven the increase and, of course, with the optimization project. Because what we announced is that we want to start commissioning end of this year, then start producing a material in the first half of next year, and then continue to increase production in the second half. So we also have a little bit longer duration to get to full capacity related to this optimization. And that also drives — because then, your project takes longer. You have more cost, of course.

Debra Fiakas: Certainly. Can you confirm that the project is still on its original schedule? Or has it been pushed back somewhat?

Frank Bakker: It’s in line with what was announced in the last call. So we start commissioning end of this year. For one building, we have all the steel in. The equipment is arriving as we speak. So the building is finished. So we’re going to start setting that equipment, and then we start testing and commissioning end of this year.

Debra Fiakas: Excellent. Now, I noted also that with the increase in the amount of CSPG production that is possible through — the CSPG throughput that’s going to be possible with the optimization plan, I just wanted to confirm what the planned product mix is? Your end report also mentions our SPG fines, spherical purified graphite fines. And I wondered, where is in the new mix under the optimization plan?