UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
⌧☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31,September 30, 2021
Or
◻☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 001-33404
WESTWATER RESOURCES, INC.
(Exact Name of Registrant as Specified in Its Charter)
6950 S. Potomac Street, Suite 300, Centennial, Colorado80112
(Address of Principal Executive Offices, Including Zip Code)
(303) (303) 531-0516
(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 |
Common Stock, $0.001 par value | | WWR | | NYSE American |
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. Yes ⌧☒ No ◻
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). Yes ⌧☒ No ◻
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 | | Accelerated |
| | |
Non-accelerated | | 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 ◻☐ No ⌧☒
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
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
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7
2
PART I — FINANCIAL INFORMATION
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(expressed in thousands of dollars, except share amounts)
(unaudited)
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2021 | | 2020 | ||
ASSETS |
| |
|
| |
|
| | | | | | |
Current Assets: |
| |
|
| |
|
Cash and cash equivalents |
| $ | 117,861 |
| $ | 50,315 |
Equity securities |
|
| 1,713 |
|
| 1,520 |
Prepaid and other current assets |
|
| 750 |
|
| 754 |
Total Current Assets |
|
| 120,324 |
|
| 52,589 |
| | | | | | |
Property, plant and equipment, at cost: |
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|
|
|
|
|
Property, plant and equipment |
|
| 9,079 |
|
| 9,080 |
Less accumulated depreciation and depletion |
|
| (96) |
|
| (95) |
Net property, plant and equipment |
|
| 8,983 |
|
| 8,985 |
Operating lease right-of-use assets |
|
| 322 |
|
| 353 |
Restricted cash |
|
| — |
|
| 10 |
Total Assets |
| $ | 129,629 |
| $ | 61,937 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| | | | | | |
Current Liabilities: |
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Accounts payable |
| $ | 2,881 |
| $ | 1,734 |
Accrued liabilities |
|
| 2,191 |
|
| 2,369 |
Operating lease liability - current |
|
| 150 |
|
| 149 |
Total Current Liabilities |
|
| 5,222 |
|
| 4,252 |
| | | | | | |
Operating lease liability, net of current |
|
| 182 |
|
| 214 |
Total Liabilities |
|
| 5,404 |
|
| 4,466 |
| | | | | | |
Commitments and Contingencies |
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Stockholders’ Equity: |
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Common stock, 100,000,000 shares authorized, $.001 par value; |
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Issued shares – 32,336,476 and 19,172,020 respectively |
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|
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Outstanding shares - 32,336,315 and 19,171,859 respectively |
|
| 32 |
|
| 19 |
Paid-in capital |
|
| 455,854 |
|
| 383,723 |
Accumulated deficit |
|
| (331,403) |
|
| (326,013) |
Less: Treasury stock (161 shares), at cost |
|
| (258) |
|
| (258) |
Total Stockholders’ Equity |
|
| 124,225 |
|
| 57,471 |
| | | | | | |
Total Liabilities and Stockholders’ Equity |
| $ | 129,629 |
| $ | 61,937 |
| | | | | | |
|
| September 30, |
| December 31, | ||
| | 2021 | | 2020 | ||
ASSETS |
| |
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| |
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| | | | | | |
Current Assets: |
| |
|
| |
|
Cash and cash equivalents |
| $ | 118,969 |
| $ | 50,315 |
Equity securities |
|
| 3,438 |
|
| 1,520 |
Prepaid and other current assets |
|
| 366 |
|
| 754 |
Total Current Assets |
|
| 122,773 |
|
| 52,589 |
| | | | | | |
Property, plant and equipment, at cost: |
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|
|
|
|
|
Property, plant and equipment |
|
| 10,577 |
|
| 9,080 |
Less accumulated depreciation and depletion |
|
| (97) |
|
| (95) |
Net property, plant and equipment |
|
| 10,480 |
|
| 8,985 |
Operating lease right-of-use assets |
|
| 258 |
|
| 353 |
Restricted cash |
|
| — |
|
| 10 |
Other long-term assets |
|
| 245 |
|
| — |
Total Assets |
| $ | 133,756 |
| $ | 61,937 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| | | | | | |
Current Liabilities: |
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|
Accounts payable |
| $ | 3,002 |
| $ | 1,734 |
Accrued liabilities |
|
| 2,792 |
|
| 2,369 |
Operating lease liability - current |
|
| 151 |
|
| 149 |
Total Current Liabilities |
|
| 5,945 |
|
| 4,252 |
| | | | | | |
Operating lease liability, net of current |
|
| 117 |
|
| 214 |
Other long-term liabilities |
|
| 1,352 |
|
| — |
Total Liabilities |
|
| 7,414 |
|
| 4,466 |
| | | | | | |
Commitments and Contingencies (see note 10) |
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Stockholders’ Equity: |
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Common stock, 100,000,000 shares authorized, $.001 par value; |
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|
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Issued shares - 34,636,224 and 19,172,020 respectively |
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Outstanding shares - 34,636,063 and 19,171,859 respectively |
|
| 34 |
|
| 19 |
Paid-in capital |
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| 466,017 |
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| 383,723 |
Accumulated deficit |
|
| (339,451) |
|
| (326,013) |
Less: Treasury stock (161 shares), at cost |
|
| (258) |
|
| (258) |
Total Stockholders’ Equity |
|
| 126,342 |
|
| 57,471 |
| | | | | | |
Total Liabilities and Stockholders’ Equity |
| $ | 133,756 |
| $ | 61,937 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
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 | | | ||||
| | March 31, | | | ||||
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| 2021 |
| 2020 |
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| | | | | | | | |
Operating Expenses: |
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Product development expenses | | $ | (1,823) |
| $ | (126) | | |
Exploration expenses | | | (145) | | | — | | |
General and administrative expenses | |
| (2,084) |
|
| (1,362) | | |
Arbitration costs | |
| (1,532) |
|
| (669) | | |
Depreciation and amortization | |
| (1) |
|
| (2) | | |
Total operating expenses | |
| (5,585) |
|
| (2,159) | | |
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Non-Operating Income/(Expenses): | |
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Unrealized gain on equity securities | | | 193 | | | — | | |
Other income (expense) | |
| 2 |
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| (3) | | |
Total other income (expense) | |
| 195 |
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| (3) | | |
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Net Loss from continuing operations | | | (5,390) |
| | (2,162) | | |
| | | | | | | | |
Net Loss from discontinued operations | | | — |
| | (1,125) | | |
| | | | | | | | |
Net Loss | | $ | (5,390) |
| $ | (3,287) | | |
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BASIC AND DILUTED LOSS PER SHARE | | $ | (0.19) |
| $ | (0.82) | | |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | |
| 28,597,938 |
|
| 4,004,948 | | |
| | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
| | | | | | | | | | | | | |
Operating Expenses: |
| | | | | | | | | | | | |
Product development expenses | | $ | (1,834) | | $ | (1,641) | | $ | (5,766) | | $ | (1,942) | |
Exploration expenses | | | (348) | | | — | | | (877) | | | — | |
General and administrative expenses | | | (2,189) | | | (1,536) | | | (6,470) | | | (4,106) | |
Arbitration costs | | | (644) | | | (171) | | | (2,190) | | | (868) | |
Mineral property expenses | | | (94) | | | (12) | | | (94) | | | (18) | |
Depreciation and amortization |
| | (1) | | | 19 | | | (3) | | | (5) | |
Total operating expenses | | | (5,110) | | | (3,341) | | | (15,400) | | | (6,939) | |
| | | | | | | | | | | | | |
Non-Operating Income/(Expenses): |
|
|
|
|
| | |
|
|
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| |
Unrealized investment gain |
|
| 507 |
|
| — | |
| 1,918 |
|
| — | |
Other income (expense) | | | 35 | | | (21) | | | 44 | | | 7 | |
Total other income (expense) |
|
| 542 |
|
| (21) | |
| 1,962 |
|
| 7 | |
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| |
|
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| |
| |
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Net Loss from continuing operations |
| | (4,568) |
| | (3,362) | | | (13,438) |
| | (6,932) | |
| | | | | | | | | | | | | |
Net Loss from discontinued operations |
| | — |
| | (6,389) | | | — |
| | (8,573) | |
| | | | | | | | | | | | | |
Net Loss |
| $ | (4,568) |
| $ | (9,751) | | $ | (13,438) |
| $ | (15,505) | |
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BASIC AND DILUTED LOSS PER SHARE | | | | | | | | | | | | | |
LOSS PER SHARE FROM CONTINUING OPERATIONS |
| $ | (0.13) |
| $ | (0.42) | | $ | (0.42) |
| $ | (1.18) | |
| | | | | | | | | | | | | |
LOSS PER SHARE FROM DISCONTINUED OPERATIONS | | $ | — | | $ | (0.81) | | $ | — | | $ | (1.45) | |
| | | | | | | | | | | | | |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
|
| 34,331,778 |
|
| 7,904,522 | |
| 31,808,215 |
|
| 5,905,850 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL CASH FLOW INFORMATION
(expressed in thousands of dollars)
(unaudited)
| | | | | | |
| | For the Three Months Ended March 31, | ||||
|
| 2021 |
| 2020 | ||
Operating Activities: |
| |
|
| |
|
Net loss |
| $ | (5,390) | | $ | (3,287) |
Reconciliation of net loss to cash used in operations: |
|
|
| |
| |
Accretion of asset retirement obligations |
|
| — | |
| 106 |
Costs incurred for restoration and reclamation activities | | | — | | | (26) |
Depreciation and amortization |
|
| 1 | |
| 13 |
Stock compensation expense |
|
| 91 | |
| — |
Unrealized (gain) on equity securities | | | (193) | | | — |
Effect of changes in operating working capital items: | | | | | | |
Increase in prepaids and other assets |
|
| (328) | |
| (352) |
Increase in payables and accrued liabilities |
|
| 969 | |
| 91 |
Net Cash Used In Operating Activities |
|
| (4,850) | |
| (3,455) |
| | | | | | |
Cash Flows From Investing Activities |
|
|
| |
|
|
Proceeds from PPP loan escrow |
|
| 333 | |
| — |
Net Cash Provided By Investing Activities |
|
| 333 | |
| — |
| | | | | | |
Cash Flows From Financing Activities: |
|
|
| |
|
|
Issuance of common stock, net |
|
| 72,203 | |
| 2,471 |
Payment of minimum withholding taxes on net share settlements of equity awards |
|
| (150) | |
| — |
Net Cash Provided By Financing Activities |
|
| 72,053 | |
| 2,471 |
|
|
|
| |
|
|
Net increase/(decrease) in cash, cash equivalents and restricted cash |
|
| 67,536 | |
| (984) |
Cash, Cash Equivalents and Restricted Cash, Beginning of Period |
|
| 50,325 | |
| 5,667 |
Cash, Cash Equivalents and Restricted Cash, End of Period |
| $ | 117,861 | | $ | 4,683 |
| | | | | | |
| | For the Nine Months Ended September 30, | ||||
|
| 2021 |
| 2020 | ||
Operating Activities: |
| |
|
| |
|
Net loss |
| $ | (13,438) | | $ | (15,505) |
Reconciliation of net loss to cash used in operations: |
|
|
| |
| |
Non-cash lease expense |
|
| (1) | |
| 2 |
Accretion of asset retirement obligations |
|
| — | |
| 170 |
Costs incurred for restoration and reclamation activities | | | — | | | (501) |
Depreciation and amortization |
|
| 3 | |
| 41 |
Stock compensation expense |
|
| 594 | |
| 170 |
Unrealized (gain) on equity securities | | | (1,918) | | | — |
Impairment of uranium properties | | | — | | | 5,200 |
Effect of changes in operating working capital items: | | | | | | |
Decrease/(Increase) in prepaids and other assets |
|
| 55 | |
| (29) |
Increase/(Decrease) in payables and accrued liabilities |
|
| 1,665 | |
| 318 |
Net Cash Used In Operating Activities |
|
| (13,040) | |
| (10,134) |
| | | | | | |
Cash Flows From Investing Activities: |
|
|
| |
|
|
Proceeds from PPP loan escrow |
|
| 333 | |
| — |
Building deposit | | | (245) | | | — |
Capital expenditures |
|
| (119) | |
| (107) |
Net Cash Used In Investing Activities |
|
| (31) | |
| (107) |
| | | | | | |
Cash Flows From Financing Activities: |
|
|
| |
|
|
Proceeds from note payable | | | — | | | 331 |
Issuance of common stock, net |
|
| 81,865 | |
| 13,530 |
Payment of minimum withholding taxes on net share settlements of equity awards |
|
| (150) | |
| — |
Net Cash Provided By Financing Activities |
|
| 81,715 | |
| 13,861 |
|
|
|
| |
|
|
Net increase in Cash, Cash Equivalents and Restricted Cash |
|
| 68,644 | |
| 3,620 |
Cash, Cash Equivalents and Restricted Cash, Beginning of Period |
|
| 50,325 | |
| 5,667 |
Cash, Cash Equivalents and Restricted Cash, End of Period |
| $ | 118,969 | | $ | 9,287 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(expressed in thousands of dollars, except share amounts)
(unaudited)
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Common Stock | | Paid-In | | Accumulated | | Treasury | | | | ||||||
Nine months ended September 30, 2021 | | Shares | | Amount | | Capital | | Deficit | | Stock | | Total | |||||
Balances, January 1, 2021 |
| 19,172,020 | | $ | 19 | | $ | 383,723 | | $ | (326,013) | | $ | (258) | | $ | 57,471 |
Net loss |
| — | |
| — | | | — | |
| (13,438) | |
| — | |
| (13,438) |
Common stock issued, net of issuance costs |
| 15,407,018 | |
| 15 | | | 81,850 | |
| — | |
| — | |
| 81,865 |
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes |
| 57,186 | |
| — | | | 594 | |
| — | |
| — | |
| 594 |
Minimum withholding taxes on net share settlements of equity awards | | — | | | — | | | (150) | | | — | | | — | | | (150) |
Balances, September 30, 2021 |
| 34,636,224 | | $ | 34 | | $ | 466,017 | | $ | (339,451) | | $ | (258) | | $ | 126,342 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Three months ended September 30, 2021 | | | | | | | | | | | | | | | | | |
Balances, June 30, 2021 | | 33,536,476 | | $ | 33 | | $ | 461,717 | | $ | (334,883) | | $ | (258) | | $ | 126,609 |
Net loss |
| — | |
| — | |
| — | |
| (4,568) | |
| — | |
| (4,568) |
Common stock issued, net of issuance costs |
| 1,099,748 | |
| 1 | |
| 4,001 | |
| — | |
| — | |
| 4,002 |
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes |
| — | |
| — | |
| 299 | |
| — | |
| — | |
| 299 |
Balances, September 30, 2021 |
| 34,636,224 | | $ | 34 | | $ | 466,017 | | $ | (339,451) | | $ | (258) | | $ | 126,342 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Common Stock | | Paid-In | | Accumulated | | Treasury | | | | ||||||
| | Shares | | Amount | | Capital | | Deficit | | Stock | | Total | |||||
Balances, December 31, 2020 |
| 19,172,020 | | $ | 19 | | $ | 383,723 | | $ | (326,013) | | $ | (258) | | $ | 57,471 |
Net loss |
| — | |
| — | | | — | |
| (5,390) | |
| — | |
| (5,390) |
Common stock issued, net of issuance costs |
| 13,107,270 | |
| 13 | | | 72,190 | |
| — | |
| — | |
| 72,203 |
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes |
| 57,186 | |
| — | | | 91 | |
| — | |
| — | |
| 91 |
Minimum withholding taxes on net share settlements of equity awards | | — | | | — | | | (150) | | | — | | | — | | | (150) |
Balances, March 31, 2021 |
| 32,336,476 | | $ | 32 | | $ | 455,854 | | $ | (331,403) | | $ | (258) | | $ | 124,225 |
| | | | | | | | | | | | | | | | | |
Balances, December 31, 2019 | | 3,339,541 | | $ | 3 | | $ | 319,758 | | $ | (302,439) | | $ | (258) | | $ | 17,064 |
Net loss |
| — | |
| — | |
| — | |
| (3,287) | |
| — | |
| (3,287) |
Common stock issued, net of issuance costs |
| 1,422,742 | |
| 2 | |
| 2,469 | |
| — | |
| — | |
| 2,471 |
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes |
| 511 | |
| — | |
| — | |
| — | |
| — | |
| — |
Balances, March 31, 2020 |
| 4,762,794 | | $ | 5 | | $ | 322,227 | | $ | (305,726) | | $ | (258) | | $ | 16,248 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Common Stock | | Paid-In | | Accumulated | | Treasury | | | | ||||||
Nine months ended September 30, 2020 |
| Shares |
| Amount |
| Capital |
| Deficit |
| Stock |
| Total | |||||
Balances, January 1, 2020 |
| 3,339,541 | | $ | 3 | | $ | 319,758 | | | (302,439) | | $ | (258) | | $ | 17,064 |
Net loss |
| — | |
| — | |
| — | |
| (15,505) | |
| — | |
| (15,505) |
Common stock issued, net of issuance costs |
| 7,093,960 | |
| 7 | |
| 13,523 | |
| — | |
| — | |
| 13,530 |
Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes |
| 511 | |
| — | |
| 170 | |
| — | |
| — | |
| 170 |
Balances, September 30, 2020 |
| 10,434,012 | | $ | 10 | | $ | 333,451 | | $ | (317,944) | | $ | (258) | | $ | 15,259 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Three months ended September 30, 2020 | | | | | | | | | | | | | | | | | |
Balances, June 30, 2020 |
| 6,664,976 | | $ | 7 | | $ | 326,073 | | $ | (308,193) | | $ | (258) | | $ | 17,629 |
Net loss |
| | |
| | |
| | |
| (9,751) | |
| — | |
| (9,751) |
Common stock issued, net of issuance costs |
| 3,769,036 | |
| 3 | | | 7,236 | |
| — | |
| — | |
| 7,239 |
Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes |
| — | |
| — | |
| 142 | |
| — | |
| — | |
| 142 |
Balances, September 30, 2020 |
| 10,434,012 | | $ | 10 | | $ | 333,451 | | $ | (317,944) | | $ | (258) | | $ | 15,259 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for Westwater Resources, Inc. (the “Company,” “we,” “us,” “WWR” or “Westwater”), 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 Westwater Resources, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020.2020 (“Annual Report”). 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 March 31,September 30, 2021 are not necessarily indicative of the results that may be expected for any other period including the full year ending December 31, 2021.
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 on Form 10-K for the year ended December 31, 2020.Report.
Recently IssuedAdopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 became effective for interim and annual periods beginning after December 15, 2020. The adoption of ASU 2019-12 did not result in a material impact to our condensed consolidated financial statements.
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.” ASU 2016-13 introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost basis. That methodology replaces the probable, incurred loss model for those assets. ASU 2018-19 is the final version of Proposed Accounting Standards Update 2018-270, which has been deleted. Additionally, the amendments clarify 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.Cash, Cash Equivalents and Restricted Cashreporting.
7
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported within the Condensed Consolidated Balance SheetSheets that sum to the total of the same such amounts shown in the statement of cash flows.
| | | | | | |
| | As of March 31, | ||||
(thousands of dollars) |
| 2021 |
| 2020 | ||
Cash and cash equivalents | | $ | 117,861 | | $ | 877 |
Restricted cash - pledged deposits for performance bonds | |
| — | |
| 3,806 |
Cash, cash equivalents and restricted cash shown in the statement of cash flows | | $ | 117,861 | | $ | 4,683 |
| | | | | | |
| | As of September 30, | ||||
(thousands of dollars) |
| 2021 |
| 2020 | ||
Cash and cash equivalents | | $ | 118,969 | | $ | 5,480 |
Restricted cash - pledged deposits for performance bonds | |
| — | |
| 3,807 |
Cash, cash equivalents and restricted cash shown in the statement of cash flows | | $ | 118,969 | | $ | 9,287 |
The Company’s restricted cash on September 30, 2020, consisted of funds held in money market accounts and used as collateral for performance obligation bonds. The funds were not available forbonds related to the payment of general corporate expenses and were excluded from cash and cash equivalents. The performance obligation bonds were required for future restoration and reclamation obligations forof the Company’s South Texas uranium properties. With the divestiture of the Company’s uranium subsidiaries, all performance obligations and related restricted cash was transferred to enCore Energy Corp. (“enCore”) as of December 31, 2020. The funds were not available for the payment of general corporate expenses and were excluded from cash and cash equivalents as of September 30, 2020.
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 financingfinancings to fund its operations for the foreseeable future. The Company will also continue its cost reduction initiatives to identify ways to reduce its cash expenditures.
In 2016, the Company began to expand its business plan into acquisition and development of energy-related materials. BetweenFirst, in 2016 and 2020 the Company obtained lithium mineral leases in Nevada and Utah andas an exploration opportunity. Then, in 2018 the Company acquired Alabama Graphite Corp. and its Coosa Graphite Project in Alabama in 2018 for the purpose of developing and mining a commercial sized graphite mineral deposit and processing the flake graphite into advanced graphite products for use in batteries. In the third quarter of 2020, the Company executed the strategic decision to focus most of its resources on itsthe graphite business in Alabama, discontinuing its investment in its lithium mineral properties and announced a proposed transaction to sellselling its uranium business, enCore Energy Corp. (“enCore”).located in Texas and New Mexico, to enCore. As discussed in Note 3, the sale to enCore closed on December 31, 2020, and included the elimination of a $9.3 million bonding liability, the elimination of $5.2 million in asset retirement obligations, and the elimination of more than $4.0 million in annual expenditures related to reclamation and compliance costs. The Company received approximately $1.8 million of enCore common stock and retained royalty interests on the New Mexico uranium properties as consideration for the sale. The Company also retained its uranium interests in Turkey, which are subject to ongoing international arbitration proceeding.proceedings, in which the Company is seeking damages.
During the first quarternine months of 2021, the Company primarily focused on graphite process development activities including the operation of a pilot programsprogram for processing flake graphite into battery-grade graphite products and the kickoff of a Definitive Feasibility Study (“DFS”) on Phase I of the Coosa Graphite Project. The data generated and experience gained from operating the pilot programs is beingprogram was used to inform the Phase I DFS that was completed in October 2021 and will also inform the requirements and specifications for building a commercial graphite processing facility.
On March 31,September 30, 2021, the Company’s cash balance was approximately $118$119.0 million. During the quarternine months ended March 31,September 30, 2021, the Company sold 9.3 million shares of common stock for net proceeds of $47.3 million pursuant to its Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co. (“Cantor”) and 3.86.1 million shares of common stock for net proceeds of $24.9$34.6 million pursuant to the December 2020 PA (as defined below)Purchase Agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) (see Note 7). As of March 31,September 30, 2021, the Company has no shares of common stock registered$50.0 million available for salefuture sales under the ATM Offering Agreement and has sold approximately 19.9% of the outstanding shares9,700,252 of common stock as of the date ofavailable for future sales pursuant to the Lincoln Park December 2020 PA.PA (as defined in Note 7).
8
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Subsequent to September 30, 2021, and through the date of this release, the Company has sold 637,200 common shares for net proceeds of $2.3 million pursuant to its financing facility with Cantor Fitzgerald & Co., and liquidated its holdings of enCore common stock for net cash proceeds of $3.6 million.
Management believes the Company’s current cash balance is sufficient to fund its planned non-discretionary expenditures through 2022. In addition to pursuing project financing, theThe Company is evaluatinganticipates the continued use of the Cantor and Lincoln Park financing facilities for use in funding any required contributions by the Company to support construction of the commercial graphite processing facility. 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 to it in amounts sufficient to meet its needs, or on terms acceptable to the Company. Stock price volatility and uncertain economic conditions caused by the COVID-19 pandemic and the recent emergence of variant strains of the virus could significantly impact the Company’s ability to raise funds through equity financing. Market conditions, including but not limited to, inflation, labor shortages and supply chain disruptions could adversely impact the planned cost of the Company’s commercial graphite processing facility. Along with evaluating the continued use of the Cantor and Lincoln Park financing facilities, the Company may consider project financing to fund the construction of the commercial graphite processing facility. In the event funds are not available for project financing to complete construction of the commercial graphite processing facility in 2022,2023, the Company willexpects to be able to fund its non-discretionary expenditures, however, the Company may be required to change its planned business development strategies.
3. ACQUISITIONS AND DISPOSALS
Sale of Uranium Business to enCore Energy
On December 31, 2020, Westwater, and its wholly owned subsidiary URI Neutron Holdings II, Inc. (“Neutron Holdings”), and enCore entered into a securities purchase agreement with enCore (the “Purchase Agreement”) to sell their subsidiaries engaged in the uranium business in Texas and New Mexico (the “Uranium Subsidiaries”) to enCore. The transaction closed on December 31, 2020.
At the closing of the transaction, enCore delivered $742,642$0.7 million in cash and issued $1,795,000$1.8 million worth of its common shares to Westwater, and Westwater and Neutron Holdings transferred all of the equity interests in the Uranium Subsidiaries to enCore along with a copy of a database relating to the Grants Mineral Belt located in New Mexico. In addition, enCore delivered to Westwater a 2% net smelter return royalty (“NSR Royalty”) on production from the uranium properties held by Uranco, Inc. in New Mexico, and a 2.5% net profits interest (“NPI”) in the profits from operations of Neutron Energy, Inc.’s Juan Tafoya and Cebolleta Projects. Pursuant to the terms of the Purchase Agreement, enCore has also agreed to replace the indemnification obligations of Westwater for certain reclamation surety bonds held in the name of URI, Inc., and Westwater transferred to enCore all rights to $3,796,788$3.8 million in cash collateral held to secure such indemnity obligations.
Also, at closing, in accordance with the terms of the Side Letter executed by the parties to the Purchase Agreement, Westwater delivered $333,120$0.3 million in cash to enCore, which amount was to be delivered in escrow upon the request of the lender, Celtic Bank, under the loan made to URI, Inc. in May 2020 pursuant to the Small Business Administration (“SBA”) Paycheck Protection Program (the “PPP Loan”). The escrowed amount was to be released to Westwater upon, and subject to, forgiveness of the PPP Loan under the terms of the CARES Act. The PPP Loan forgiveness application was filed on January 25, 2021, and Westwater received a notification from the SBA on March 31, 2021 that 100% of the loan had been forgiven. As a result, on March 31, 2021, the escrowed funds were returned to WestwaterWestwater.
The divestiture of the uranium business was accounted for as an asset disposal and the non-cash consideration received from enCore was recorded at fair value. In accordance with the terms of the purchase agreement,Purchase Agreement, non-cash consideration included the receipt of shares of enCore common stock valued in the amount of $1,795,000.$1.8 million. The number of shares issued at closing was 2,571,598. The number of shares was determined by a pricing formula based on the volume
9
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
weighted average price (“VWAP”) of enCore’s common shares for the ten trading days ending on and including December 30, 2020. The VWAP formula resulted in a price of $0.698.$0.698 per share of enCore common stock.
For purposes of determining the fair value of the enCore shares at December 31, 2020, the Company used the closing price for enCore shares on December 31, 2020 which was $0.736, resulting in a value of approximately $1,895,000. The Company then determined that a discount for lack of marketability should be considered because (1) the shares were not eligible for sale by Westwater until May 1, 2021, and (2) after May 1, 2021, the terms of the purchase agreement require WWR to offer enCore a first right to buy the shares if the amount to be sold in a single transaction is greater than 250,000 shares. Utilizing a precedent comparable transaction and Black-Scholes valuation methodology for fair value
9
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
evaluation, the Company determined that a discount of 21%, or $375,000, should be applied to the shares. Accordingly, the carrying value of the shares has been adjusted to reflect a fair value of $1,520,000, and the discount was charged to loss on sale of uranium assets on the Consolidated Statement of Operations for the year ended 12/31/2020.
Finally, due to the high degree of uncertainties surrounding future mine development and uranium prices, as well as limited marketability, the Company determined the fair value of the NSR Royalty and NPI to be of nilNaN value.
At December 31, 2020, the following fair value amounts were recorded as purchase consideration:
| | | |
(thousands of dollars) |
| |
|
Cash | | $ | 743 |
Transaction costs | |
| (558) |
Contingent consideration for PPP Loan escrow | | | 333 |
enCore common stock | |
| 1,520 |
Total consideration received | | $ | 2,038 |
At December 31, 2020, the Company recorded the following loss on disposal of uranium properties within its Consolidated Statement of Operations:
| | | |
(thousands of dollars) |
|
|
|
Total consideration received | | $ | 2,038 |
Carrying value of uranium property, plant and equipment | |
| (6,204) |
Restricted Cash | |
| (3,797) |
Other assets | | | (579) |
Asset retirement obligation | | | 5,239 |
Note Payable (PPP loan) | | | 333 |
Other liabilities | | | 305 |
Loss on disposal of uranium entities | | $ | (2,665) |
The loss was primarily related to resolution of transaction issues and final negotiations in the fourth quarter leading up to the transaction closing on December 31, 2020.
4. FINANCIAL INSTRUMENTSFAIR VALUE MEASUREMENTS
Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes a fair-value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):
● | Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that are observable at the measurement date. |
● | Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). |
10
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
● | Level 3 includes unobservable inputs that reflect management’s assessment about what factors market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including internal data. |
The Company believes that the fair value of its assets and liabilities approximates their reported carrying amounts. The following table presents information about assets that were recorded at fair value on a recurring and non-recurring basis as of March 31,September 30, 2021 and December 31, 2020 and indicates the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | September 30, 2021 | ||||||||||||||||||||
(thousands of dollars) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
Current Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Equity securities | | $ | — | | $ | — | | $ | 1,713 | | $ | 1,713 | | $ | 3,438 | | $ | — | | $ | — | | $ | 3,438 |
Land grant | | | — | | | — | | | 1,378 | | | 1,378 | ||||||||||||
Total current assets recorded at fair value | | $ | — | | $ | — | | $ | 1,713 | | $ | 1,713 | | $ | 3,438 | | $ | — | | $ | 1,378 | | $ | 4,816 |
| | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||
(thousands of dollars) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Current Assets |
| |
|
| |
|
| |
|
| |
|
Equity securities | | $ | — | | $ | — | | $ | 1,520 | | $ | 1,520 |
Total current assets recorded at fair value | | $ | — | | $ | — | | $ | 1,520 | | $ | 1,520 |
Non-current Assets | |
|
| |
|
| |
|
| |
|
|
Restricted cash | | $ | 10 | | $ | — | |
| — | | $ | 10 |
Total non-current assets recorded at fair value | | $ | 10 | | $ | — | | $ | — | | $ | 10 |
Recurring Fair Value Measurements
Assets that are measured on a recurring basis include the Company’s marketable securities and restricted cash. Equity securities on the balance sheet at December 31, 2020 and March 31,September 30, 2021 consist solely of shares of common
10
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
stock received as partial consideration for the sale of uranium assets to enCore (see Note 3). A $0.2 million increaseFurther, the sale of the enCore shares was restricted and resulted in the Company applying a discount for the lack of marketability prior to May 1, 2021. As the restrictions on the sale of enCore stock have expired and the shares are currently available for sale, the fair value of the securities now reflects the unadjusted market price of enCore shares as of September 30, 2021. With the lifting of restrictions and no anticipated lack of marketability, the measurement in equity securities was recognizedis now considered Level 1 in net income forthe fair-value hierarchy. For the three month periodand nine months ended March 31, 2021.September 30, 2021, the Company recognized unrealized gains of $0.5 million and $1.9 million, respectively, related to the increased fair value of the enCore shares.
Non-recurring Fair Value Measurements
As discussed in Note 5, on July 23, 2021, the Company received a land grant from local municipalities related to its planned graphite processing plant in Coosa County, Alabama. At inception, the Company estimated the fair value of the land to be approximately $1.4 million. The fair value was determined using Level 3 inputs using the market approach, by considering comparable sales in the area, adjusted for property specific items; such as lot size, location and access to major highways and distribution channels. The Company began amortization of the obligation over the 10-year lease term.
5. PROPERTY, PLANT AND EQUIPMENT
| | | | | | | | | | | | | | | | | | |
| | Net Book Value of Property, Plant and Equipment at March 31, 2021 | | Net Book Value of Property Plant and Equipment at September 30, 2021 | ||||||||||||||
(thousands of dollars) |
| Alabama |
| Corporate |
| Total |
| Alabama |
| Corporate |
| Total | ||||||
Mineral rights and properties | |
| 8,972 | |
| — | |
| 8,972 | | $ | 8,972 | | $ | — | | $ | 8,972 |
Other property, plant and equipment | |
| — | |
| 11 | |
| 11 | |
| 1,378 | |
| 30 | |
| 1,408 |
Construction in progress | | | 100 | | | — | | | 100 | |||||||||
Total | | $ | 8,972 | | $ | 11 | | $ | 8,983 | | $ | 10,450 | | $ | 30 | | $ | 10,480 |
| | | | | | | | | | | | | | | | | | |
| | Net Book Value of Property, Plant and Equipment at December 31, 2020 | | Net Book Value of Property Plant and Equipment at December 31, 2020 | ||||||||||||||
(thousands of dollars) |
| Alabama |
| Corporate |
| Total |
| Alabama |
| Corporate |
| Total | ||||||
Mineral rights and properties | |
| 8,972 | |
| — | |
| 8,972 | | $ | 8,972 | | $ | — | | $ | 8,972 |
Other property, plant and equipment | |
| — | |
| 13 | |
| 13 | |
| — | |
| 13 | |
| 13 |
Total | | $ | 8,972 | | $ | 13 | | $ | 8,985 | | $ | 8,972 | | $ | 13 | | $ | 8,985 |
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 three
11
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
nine months ended March 31,September 30, 2021 no events or changes in circumstance are believed to have impacted recoverability of the Company’s long-lived assets. Accordingly, it was determined that no0 interim impairment was necessary.
Land Addition
On June 22, 2021, Alabama Graphite Products, LLC (“AGP”), a wholly-owned subsidiary of Westwater entered into incentive agreements with the State of Alabama and local municipalities for the siting of the Company’s planned 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 processing facility. Additionally, in connection to, and in contemplation of the incentive agreements, on July 23, 2021, AGP entered into a land lease with the Lake Martin Area Industrial Development Authority. The lease provides AGP rights to approximately 70 acres to construct and operate its commercial graphite processing facility in Coosa County, Alabama. The lease has a term of
11
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
10-years, a nominal lease payment, and transfer of title to AGP at the end of the lease term. Further, the lease provides AGP the option to purchase the land for a nominal amount during the term of the lease.
The incentive agreements and the lease are accounted for by the company as a government grant; whereby the Company realized the fair value of the land, subject to the lease, at inception with a corresponding obligation on the consolidated balance sheet. The land is included in property, plant, and equipment, and represents a non-depreciable asset on the Company’s consolidated balance sheet. The corresponding obligation is recorded in other long-term liabilities on the consolidated balance sheet.
6. DISCONTINUED OPERATIONS
In the third quarter of 2020, the Company executed the strategic decision to focus its resources on its graphite business, as further discussed below, and discontinuediscontinued its investment in its lithium business. On December 31, 2020 the Company entered into a securities purchase agreement pursuant to which it agreed to sell its subsidiaries engaged in theand uranium business in Texas and New Mexico to enCore. The transaction closed on December 31, 2020.businesses. The Company’s lithium business included mineral leases and water rights in Nevada and Utah. The Company elected not to renew the annual lease rentals on the mineral properties, which also voids the water rights. On December 31, 2020, the Company sold its subsidiaries engaged in its uranium business to enCore (see Note 3).
In accordance with ASC 205-20 – “Discontinued Operations,” the enCore transaction represented a major strategic shift for Westwater and resulted in the reclassification of the Company’s uranium activities as discontinued operations and disclosure of the associated profit/loss of the Company’s uranium business as a separate line-item on the Company’s Condensed Consolidated Statement of Operations for the three and nine months ended March 31,September 30, 2020.
The results of the Company’s uranium and lithium business segments included in discontinued operations for the three and nine months ended March 31,September 30, 2020 were as follows:
|
|
|
| ||
|
| |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
|
| | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | ||
(thousands of dollars) |
| September 30, 2020 |
| September 30, 2020 | ||
Mineral property expenses |
| $ | (752) |
| $ | (1,924) |
General and administrative expenses |
|
| (405) |
|
| (1,273) |
Accretion of asset retirement obligations |
|
| (32) |
|
| (170) |
Depreciation and amortization |
|
| (30) |
|
| (36) |
Impairment of uranium properties | | | (5,200) | | | (5,200) |
Other income (expense) |
|
| 30 |
|
| 30 |
Net Loss from Discontinued Operations |
| $ | (6,389) |
| $ | (8,573) |
Our cash flow information for the threenine months ended March 31,September 30, 2020 included the following activities related to discontinued operations:
| | | ||
| For the Three Months Ended | | | |
| March 31, | For the Nine Months Ended | ||
(thousands of dollars) | | 2020 | | September 30, 2020 |
Depreciation and amortization | $ | 11 | $ | 36 |
Capital Expenditures | | (101) | ||
Accretion of asset retirement obligations | | 106 | | 170 |
Impairment of uranium properties | | 5,200 |
12
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. 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 a Purchase Agreement with Lincoln Park (“the(the “December 2020 PA”) to place up to $100.0 million in the aggregate of the Company's common stock on an ongoing basis when required by the Company over a term of 36 months. The Company controls the timing and amount of any sales to Lincoln Park, and Lincoln Park is obligated to make purchases in accordance with the December 2020 PA. Any common stock that is sold to Lincoln Park will occur at a purchase price that is based on an agreed upon fixed discount to the Company's
12
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
prevailing market prices at the time of each sale and with no upper limits to the price Lincoln Park may pay to purchase common stock. The agreement may be terminated by the Company at any time, in its sole discretion, without any additional cost or penalty.
The December 2020 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 19.99% of the number of shares of the Company’s common stock that were outstanding immediately prior to the execution of the December 2020 PA unless (i) shareholder approval is obtained or (ii) the average price of all applicable sales of common stock to Lincoln Park under the December 2020 PA, equals ofor exceeds $6.15. The Company has scheduledheld its 2021 Annual Shareholders Meeting foron May 21, 2021 and has included a proposal in its Proxy Statement which seeksobtained shareholder approval for the issuance of more than 19.99% of the shares of the Company’s common stock outstanding on December 4, 2020.outstanding.
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 December 2020 PA if it would result in Lincoln Park beneficially owning more than 9.99% of its common stock.stock at any one point in time.
During the three and nine months ended March 31,September 30, 2021, pursuant to the December 2020 PA with Lincoln Park, the Company sold 3.81.1 million and 6.1 million shares of common stock for net proceeds of $24.9$4.0 million pursuant to the December 2020 PA with Lincoln Park.and $34.6 million, respectively. These shares were sold pursuant to a Form S-3prospectus supplement filed on December 4, 2020, and in accordance with Rule 424(b)(5) as a takedown off the Company’s shelf registration statement, filed pursuant to Rule 424(b)(3) andwhich had been declared effective by the Securities and Exchange Commission (the “Commission”) on December 4,1, 2020. As of March 31, 2021, the Company has sold approximately 19.9% of the outstanding shares of common stock as of the date of the December 2020 PA.
ATM Offering Agreement with Cantor
On April 14, 2017, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “ATM Offering Agreement”) with Cantor acting as 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 2.5% of the gross proceeds from the sale of any shares pursuant to the ATM Offering Agreement.
During the threenine months ended March 31,September 30, 2021, the Company sold 9.3 million shares of common stock for net proceeds of $47.3 million pursuant to the ATM Offering Agreement with Cantor. These shares were sold pursuant to a prospectus supplement filed on December 4, 2020, pursuant toand in accordance with Rule 424(b)(5) as a takedown off the Company’s shelf registration statement, which had been declared effective by the Securities and Exchange Commission on December 1, 2020. The Company did 0t sell any shares of common stock pursuant to the ATM Offering Agreement for the three months ended September 30, 2021.
As of March 31,September 30, 2021, the Company has no shares of common stock registered$50 million available for sale under the ATM Offering Agreement.
Warrants
The following table summarizes warrants outstanding and changes for the three-month periods ending March 31,Agreement, pursuant to a prospectus supplement filed on August 20, 2021, and 2020:
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in accordance with Rule 424(b)(5) as a takedown off the Company’s shelf registration statement on Form S-3, which was declared effective by the Commission on July 8, 2021.
13
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Warrants
The following table summarizes warrants outstanding and changes for the nine months ended September 30, 2021 and 2020:
| | | | |
| | September 30, 2021 | | September 30, 2020 |
|
| |
| |
| | Number of | | Number of |
| | Warrants | | Warrants |
Warrants outstanding at beginning of period |
| 0 |
| 186,182 |
Issued |
| 0 |
| 0 |
Expired |
| 0 |
| 0 |
Warrants outstanding at end of period |
| 0 |
| 186,182 |
On October 6, 2020, a warrant holder of 182,515 warrants provided notice of exercise. The warrant holder elected the cashless exercise method to convert the warrants to shares of common stock. Based on the cashless exercise formula, the Company issued the warrant holder 118,799 shares of common stock.
8. 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: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, and 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 20,000, shares, 66,000, 350,000, and 350,0001,500,000 shares, respectively, and in 2017 re-approved the material terms of the performance goals under the plan. Under the 2013 Plan, the Company may grant awards of stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards and cash bonus awards to eligible persons. The maximum number of the Company’s common stock that may be reserved for issuance under the 2013 Plan is currently 416,278 shares of common stock, plus unissued shares under the prior plans. Equity awards under the 2013 Plan are granted from time to time at the discretion of the Compensation Committee of the Board (the “Committee”), with vesting periods and other terms as determined by the Committee with a maximum term of 10 years. The 2013 Plan is administered by the Committee, which can delegate the administration to the Board, other Committees or to such other officers and employees of the Company as designated by the Committee and permitted by the 2013 Plan.
As of March 31,September 30, 2021, 58,5861,223,939 shares were available for future issuances under the 2013 Plan. For the three and nine months ending March 31,ended September 30, 2021, and 2020, the Company recorded stock-based compensation expense of $91,000$0.3 million and $0,$0.6 million, respectively. Stock compensation expense is recorded in general and administrative expenses.
In addition to the plans above, upon closing of the Company’s acquisition of Alabama Graphite in April 2018, the Company issued 50,168 replacement options and warrants to the option and warrant holders of Alabama Graphite. The number of replacement options and warrants shares was determined using the arrangement exchange rate of 0.0016. The exercise prices for the option and warrant shares were first converted for the exchange rate of 0.0016 and then converted to USD using the exchange rate on December 13, 2017 of 0.77809 (CAD to USD). The options and warrant shares were issued with the same terms and conditions as were applicable prior to the acquisition of Alabama Graphite. As of March 31, 2021, there were 1,200 replacement options outstanding but all replacement warrants have expired.
14
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Stock Options
The following tables summarize stock options outstanding and changes for the three month periods ending March 31,nine months ended September 30, 2021 and 2020:
| | | | | | | | | | |
| | March 31, 2021 | | March 31, 2020 | ||||||
|
| |
| Weighted |
| |
| Weighted | ||
| | Number of | | Average | | Number of | | Average | ||
| | Stock | | Exercise | | Stock | | Exercise | ||
| | Options | | Price | | Options | | Price | ||
Stock options outstanding at beginning of period |
| 185,054 | | $ | 7.99 |
| 37,786 | | $ | 37.42 |
Granted |
| — | |
| — |
| — | |
| — |
Expired |
| (800) | |
| 71.63 |
| (1,217) | |
| 75.95 |
Canceled or forfeited | | — | | | — | | — | | | — |
Stock options outstanding at end of period |
| 184,254 | | $ | 7.72 |
| 36,569 | | $ | 36.14 |
Stock options exercisable at end of period |
| 34,453 | | $ | 32.40 |
| 36,569 | | $ | 36.14 |
| | | | | | | | | | |
| | September 30, 2021 | | September 30, 2020 | ||||||
|
| |
| Weighted |
| |
| Weighted | ||
| | Number of | | Average | | Number of | | Average | ||
| | Stock | | Exercise | | Stock | | Exercise | ||
| | Options | | Price | | Options | | Price | ||
Stock options outstanding at beginning of period |
| 185,054 | | $ | 7.99 |
| 37,786 | | $ | 37.42 |
Granted |
| 94,522 | |
| 3.91 |
| 125,804 | |
| 1.59 |
Expired |
| (2,000) | |
| 73.54 |
| (1,693) | |
| 101.64 |
Stock options outstanding at end of period |
| 277,576 | | | 6.18 |
| 161,897 | | | 9.25 |
Stock options exercisable at end of period |
| 183,054 | | $ | 7.35 |
| 36,093 | | $ | 34.41 |
The following table summarizes stock options outstanding and exercisable by stock option plan at March 31,September 30, 2021:
| | | | | | | | | | | | | | | | | | | | |
| | Outstanding Stock Options | | Exercisable Stock Options | | Outstanding Stock Options | | Exercisable Stock Options | ||||||||||||
|
| Number of |
| Weighted |
| Number of |
| Weighted |
| Number of |
| Weighted |
| Number of |
| Weighted | ||||
| | Outstanding | | Average | | Stock Options | | Average | | Outstanding | | Average | | Stock Options | | Average | ||||
Stock Option Plan | | Stock Options | | Exercise Price | | Exercisable | | Exercise Price | | Stock Options | | Exercise Price | | Exercisable | | Exercise Price | ||||
2004 Plan |
| 92 | | $ | 1,638.00 |
| 92 | | $ | 1,638.00 |
| 92 | | $ | 1,638.00 |
| 92 | | $ | 1,638.00 |
2004 Directors’ Plan |
| 3 | |
| 10,380.00 |
| 3 | |
| 10,380.00 |
| 3 | |
| 10,380.00 |
| 3 | |
| 10,380.00 |
2013 Plan |
| 182,959 | |
| 6.29 |
| 33,158 | |
| 25.47 |
| 277,481 | |
| 5.53 |
| 182,959 | |
| 6.36 |
Replacement Options-Alabama Graphite |
| 1,200 | |
| 74.82 |
| 1,200 | |
| 74.82 | ||||||||||
|
| 184,254 | | $ | 7.72 |
| 34,453 | | $ | 32.40 |
| 277,576 | | $ | 6.18 |
| 183,054 | | $ | 7.35 |
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 Compensation Committee of the Board of Directors at each vesting date, and the valuation of such awards assumes full satisfaction of all performance criteria.
The following tablestable summarizes RSU activity for the three month periodsnine months ended March 31,September 30, 2021 and 2020:
| | | | | | | | | | |
| | March 31, | | March 31, | ||||||
| | 2021 | | 2020 | ||||||
|
| |
| Weighted- |
| ��� |
| Weighted- | ||
| | | | Average | | | | Average | ||
| | Number of | | Grant Date | | Number of | | Grant Date | ||
| | RSUs | | Fair Value | | RSUs | | Fair Value | ||
Unvested RSUs at beginning of period |
| 236,403 | | $ | 2.10 |
| — | | $ | — |
Granted |
| — | |
| — |
| — | |
| — |
Forfeited |
| — | |
| — |
| — | |
| — |
Vested |
| (78,801) | |
| 2.10 |
| — | |
| — |
Unvested RSUs at end of period |
| 157,602 | | $ | 2.10 |
| — | | $ | — |
| | | | | | | | | | |
| | September 30, | | September 30, | ||||||
| | 2021 | | 2020 | ||||||
|
| |
| Weighted- |
| |
| Weighted- | ||
| | | | Average | | | | Average | ||
| | Number of | | Grant Date | | Number of | | Grant Date | ||
| | RSUs | | Fair Value | | RSUs | | Fair Value | ||
Unvested RSUs at beginning of period |
| 236,403 | | $ | 2.10 |
| 0 | | $ | 0 |
Granted |
| 240,125 | |
| 3.93 |
| 211,497 | |
| 2.03 |
Forfeited |
| 0 | |
| 0 |
| 0 | |
| 0 |
Vested |
| (78,801) | |
| 2.10 |
| 0 | |
| 0 |
Unvested RSUs at end of period |
| 397,727 | | $ | 3.20 |
| 211,497 | | $ | 2.03 |
15
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
9. 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 341,856675,303 were excluded from the calculation of earnings per
15
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 March 31,September 30, 2021.
10. 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 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.
11. LEASES
The Company’s lease portfolio consists of operating leases for corporate offices, storage space and equipment. The leases have remaining lease terms of 1.61.1 years to 2.31.8 years, one of which includes an option to extend the corporate office lease for 3 years. Under our corporate office lease, we are required to reimburse the lessor each month for common use expenses such as maintenance and security services. Because these amounts are variable from year to year and not specifically set in the lease terms, they are not included in the measurement of the right-of-use asset and related lease liability, but rather expensed in the period incurred.
The Company is party to several leases that have terms that are for under oneless than a year in length. These include such leases as those for land used in exploration and mining activities, office equipment, machinery, office space, storage and other. The Company has elected the short-term lease exemptionsexemption allowed under the new leasing standards, whereby leases with initial terms of one year or less are not capitalized and instead expensed on a straight-line basis over the lease term. In addition, the Company holds numerousseveral leases related to mineral exploration and production to which it has not applied the new leasing standard. Leases to explore or use minerals and similar nonregenerative resources are specifically excluded by ASC 842-10.842, “Leases.”
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 arewere 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 9.5%. This rate is the Company’s current estimated incremental borrowing rate.rate at the lease commencement date.
The components of lease expense are as follows:
| | | | | | | | | | | | |
|
| For the Three Months Ended |
| For the Nine Months Ended | ||||||||
| | March 31, | | September 30, | ||||||||
(thousands of dollars) | | 2021 | | 2020 | | 2021 | | 2020 | ||||
Operating lease cost | | $ | 38 | | $ | 40 | | $ | 115 | | $ | 112 |
16
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental cash flow information related to the Company’s operating leases is as follows:
| | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | ||||||||
| | March 31, | | September 30, | ||||||||
(thousands of dollars) |
| 2021 | | 2020 |
| 2021 | | 2020 | ||||
Cash paid for amounts included in lease liabilities: |
| |
| | |
|
| |
| | |
|
Operating cash flows from operating leases | | $ | 39 | | $ | 39 | | $ | 115 | | $ | 115 |
| | | | | | | | | | | | |
Right-of-use assets obtained in exchange for lease obligations: | |
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| |
|
| |
|
| |
|
|
Operating leases | | $ | 322 | | $ | 454 | | $ | 258 | | $ | 383 |
Supplemental balance sheet information related to the Company’s operating leases is as follows:
| | | | | | | | | | | | |
|
| March 31, | | December 31, |
| September 30, | | December 31, | ||||
(thousands of dollars, except lease term and discount rate) | | 2021 | | 2020 | | 2021 | | 2020 | ||||
Operating Leases |
| |
| | |
|
| |
| | |
|
Operating lease right-of-use assets | | $ | 322 | | $ | 353 | | $ | 258 | | $ | 353 |
| | | | | | | | | | | | |
Current portion of lease liabilities | | $ | 150 | | $ | 149 | | | 151 | | | 149 |
Operating lease liabilities – long term portion | |
| 182 | |
| 214 | |
| 117 | |
| 214 |
Total operating lease liabilities | | $ | 332 | | $ | 363 | | $ | 268 | | $ | 363 |
Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:
| | | | | | | | | | | | | | |
| | | For the Three Months Ended | | | For the Three Months Ended | ||||||||
| | | March 31, | | | September 30, | ||||||||
| | | 2021 | | 2020 | | | 2021 | | 2020 | ||||
Weighted Average Remaining Lease Term (in years) | |
| 2.6 | | | 3.5 | | |
| 1.8 | | | 3.0 | |
| | | | | | | | | | | | | | |
Discount Rate | |
| 9.5 | % | | 9.5 | % | |
| 9.5 | % | | 9.5 | % |
Maturities of lease liabilities for the Company’s operating leases are as follows:
| | | | | ||
Lease payments by year |
| March 31, |
| September 30, | ||
(In thousands) | | 2021 | ||||
2021 (remainder of year ) | | $ | 117 | |||
(in thousands) | | 2021 | ||||
2021 (remainder of year) | | $ | 39 | |||
2022 | |
| 158 | |
| 158 |
2023 | |
| 92 | |
| 92 |
Total lease payments | | $ | 367 | |
| 289 |
Less imputed interest | |
| (35) | |
| (21) |
Total | | $ | 332 | | $ | 268 |
As of March 31,September 30, 2021, the Company has $0.3 million in right-of-use assets and $0.3 million in related lease liabilities ($0.2 million of which is current). The most significant operating lease is for the Company’s corporate office in Centennial, Colorado, with $0.4$0.3 million remaining in undiscounted cash payments through the end of the lease term in 2023. The total undiscounted cash payments remaining on operating leases through the end of their respective terms is $0.4$0.3 million.
17
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
12. SUBSEQUENT EVENTS
On October 13, 2021, Alabama Graphite Products, LLC (“AGP”), a wholly-owned subsidiary of Westwater, completed the purchase of 2 buildings that total 90,000 sq. ft. for approximately $3.1 million. The purchase of the 2 buildings supports the development of AGP’s Coosa Graphite Project, as both buildings are adjacent to the future site of the planned processing plant, and will be used for administrative offices, laboratory, and warehousing space.
18
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 March 31,September 30, 2021, has been prepared based on information available to us as of May 13,November 10, 2021. 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 WWRWestwater for the period ended December 31, 2020 and the related notes thereto filed with our Annual Report on Form 10-K, which have been prepared in accordance with U.S. GAAP. This discussion and analysis contains forward-looking statements that involve 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.”Statements” herein.
INTRODUCTION
Westwater Resources, Inc. is a 44-year-old public company trading on the NYSE American Stock Exchange (“NYSE American”) focused on battery graphite development under the symbol “WWR.” Originally incorporated in 1977 as Uranium Resources, Inc. to mine uranium in Texas, our company has been reborn aspivoted to an energy materials developer. Westwater is focused on battery-grade graphite materials after its acquisition of Alabama Graphite Corp. (“Alabama Graphite”) and its Coosa Graphite Project (“Coosa Project”) in Alabama in April 2018. Westwater recently discovered significant vanadium concentrations at2018. Combined with the Coosa Project and has developedanticipated construction of a battery graphite processing facility near Kellyton, Alabama, the Company is executing an exploration plan to further investigate the size and extent of those concentrations.mineral concentrations at Coosa graphite deposit, located near Rockford, Alabama, to increase our knowledge of the deposit as a whole.
RECENT DEVELOPMENTS
Graphite Processing Pilot Programs
During the quarter ended March 31,September 30, 2021, the Company continued, and in October 2021 substantially completed, its pilot plant operationsprogram at Dorfner Anzaplan’s facilities near Amberg, Germany, as well as at facilities in Frankfurt, Germany, Chicago, Illinois and Buffalo, New York. The combined effort at these facilities produced more than 11approximately 13 metric tonnes of Westwater’s three battery-grade graphite products: ULTRA-PMG™, ULTRA-CSPG™ and ULTRA-DEXDG™, which were previously produced at a bench scale.
As of March 31,September 30, Westwater had produced:produced through the pilot program:
● |
● |
● | 0.4 metric tonnes of |
Westwater undertook its pilot program operations to inform and enhance design work for its commercial production facility and to produce products for testing by potential customers. The information from those operations is beingthe pilot program was incorporated into athe Definitive Feasibility Study (“DFS”).
Definitive Feasibility Study on the Coosa Graphite Project
On February 4,October 11, 2021, Westwater entered into a Master Services Agreement (the “Master Services Agreement”) with Samuel Engineering, Inc. (“Samuel”) for various engineering support and consulting services in connection with the Company’s Coosa Graphite Project DFS.
18
UnderCompany announced the terms of the Master Services Agreement and as a partresults of the DFS Samuelpertaining to Phase I of its Coosa Graphite Processing Facility (the “Project”). The Company intends to develop the Project to purify natural graphite concentrates and to produce battery ready graphite products in two phases. The capital costs of Phase I of the Project are
19
estimated at $202 million. Beginning in early 2023, the Project is among other things, conducting studies that addressexpected to begin producing from purchased feedstock from outside sources until at least 2028, after which the Company expects to produce graphite feedstock from its Coosa Project’s location, raw materials, product quality, infrastructureProject. After processing and other preliminary assessments, which will provide cost estimatespurification, the Company expects approximately 7,500 mt per year of two products to be commercially available in the following quantities:
● | CSPG: 3,700 mt per year |
● | Fine Products from SPG milling: 3,800 mt per year |
● | Project Duration: 35 years |
● | Pre-Tax NPV-8 percent: $119 million |
● | IRR: 15% |
● | Annual Pre-Tax Cash Flow (After the year 2024): $24 million per year |
● | Project Pre-Tax Cash Flow: $656 million. |
Also on October 11, 2021, the Company announced a plan and design for Phases I andPhase II of the Coosaproject at a pre-feasibility level (“PFS”). The PFS for Phase II of the Project identifying long-lead itemsestimates capital costs of $464 million, and providing detailed specifications for these items toafter processing and purification, the Company expects approximately 32,400 mt per year of two products will be ordered, as well as preparing designs and drawings foravailable in the detailed engineering phase prior to construction.following quantities:
● | CSPG: 15,800 mt per year |
● | Fine Products from SPG milling: 16,600 mt per year |
● | Project Duration: 35 years |
● | Pre-Tax NPV-8 percent: $767 million |
● | IRR: 20.5% |
● | Average Annual Pre-Tax Cash Flow (After the year 2024): $129 million |
● | Project Pre-Tax Cash Flow: $3.7 billion |
The Company intends to initiate a DFS isfor Phase II upon completion and commissioning of Phase I of the Project.
Approval of Construction of Phase I and Purchase of Industrial Space
On October 11, 2021,the Company’s Board of Directors approved estimated expenditures of $202 million to execute the construction and commissioning plan for Phase I of the Project. Construction related activities are expected to be completed bybegin before the end of 2021.
In addition, on October 13, 2021 the second quarterCompany completed the purchase of 2021. Westwater planstwo buildings by its subsidiary, Alabama Graphite Products, LLC, that total 90,000 sq. ft. in size, to utilizesupport the DFS as a basis for engaging financial institutions and to start the constructiondevelopment of the plant, which is anticipatedProject. These buildings will be used for administrative offices, a laboratory, and warehousing space, and each are adjacent to begin around the endplanned processing plant. The purchase of 2021. Completion of Phase I is plannedthese two buildings avoids the need for the end of 2022, with production anticipated in 2023.certain construction activities.
Vanadium Target Identification
In late November 2018, Westwater announced the discovery of significanta concentration of vanadium mineralization at several locations hosted in the graphitic schists at the Coosa Project. Westwater subsequently commenced the first of a four-phase exploration program designed to determine the extent, character and quality of the vanadium mineralization at the Coosa Project. As announced by the Company on February 19, 2019, theThe first phase demonstrated widespread positive values for vanadium that extended beyond the Coosa graphite deposit, as defined in the 2015 Preliminary Economic Assessment for the Coosa Project.site.
The second phase of thisthe vanadium exploration project began in April 2021.2021 and is expected to continue throughout the remainder of the year. Scope for this effort includes drilling various targets to expand ourthe Company’s knowledge of the geology, examining the core and/or cuttings for mineral constituents, and adding to ourthe existing geologic model. In addition, vanadium mineralization is expected to be evaluated using extractive metallurgy techniques to ascertain any economic potential.
20
Graphite and Vanadium Listed as Critical Materials
On February 24, 2021, the President signed an Executive Order that seeks to provide for more resilient supply chains to revitalize and rebuild domestic manufacturing capacity and maintain America’s competitive edge in research and development. Graphite and vanadium are specifically named as critical minerals in which the U.S.United States is heavily dependent on China for its supply.
The President’s declaration asksasked the Secretary of Energy, as part of larger study involving several branches of the U.S.United States government, to submit a report within 100 days identifying risks to the supply chain for high-capacity batteries including those that power electric vehicles. This effortOn June 8, 2021, the White House released a response to the findings of this study in support of securing an end-to-end domestic supply chain for advanced batteries, including investment in domestic production and processing of critical minerals. Key recommendations in the June 8, 2021 release include, among other things, providing funding and financial incentives to encourage consumer adoption of electric vehicles, providing financing to support advanced battery production, and investing in the development of next generation batteries. The February 2021 Executive Order and the key recommendations in the June 8, 2021 White House release, builds upon the prior Administration’s Executive Order issued on September 30, 2020, related to critical minerals, and could be important to Westwater’s plans to develop its battery graphite business in the United States. The new order builds upon
Presently, the prior Administration’s Executive Order issued on September 30, 2020 related to critical minerals.
The U.S.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 smartphones, laptops, electric vehicles, and store power generated from intermittent renewable energy sources. Westwater intends to develop the Coosa Graphite Project to supply natural flake graphite for beneficiation into battery-grade graphite for all types of batteries.
Further details on the Executive Order on America’s Supply Chains can be found at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/executive-order-on-americas-supply-chains/.
Further details on the June 8, 2021 White House press release can be found at https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/08/fact-sheet-biden-harris-administration-announces-supply-chain-disruptions-task-force-to-address-short-term-supply-chain-discontinuities/
Westwater will workintends to support the efforts by the relevant United States governmental agencies in the U.S. government and willto ensure that they remain aware of the importance of battery-grade graphite, its importance to the nation’s security, and how the Coosa Graphite Project fits into the critical minerals-equation.
The COVID-19 Pandemic and our Actions to Ensure Safety
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. The pandemic spread outside of China during the first quarter of 2020 and has impacted businesses and economies throughout the world. In the U.S., many state and local governments have, based on local conditions, either recommended or mandated actions to slow the transmission of COVID-19. These measures range from limitations on crowd size to masking to mandatory orders for non-
19
essentialnon-essential citizens to “shelter in place” or “stay at home” until further direction.test and quarantine. Borders between many countries have been closed to contain the spread of COVID-19. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
To the extent that the COVID 19 pandemic continues or worsens, including by reason of the emergence of variant strains of the virus, local governments or governmental agencies may impose additional restrictions. The result of COVID 19 and those restrictions could result in a number of adverse impacts to Westwater’s business, including but not limited to additional disruption to the economy, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable. As a result, it may be challenging to obtain and process raw materials to support business needs, and individuals could become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Governments may also impose other laws, regulations or taxes which could adversely impact Westwater’s business, financial condition or results of operations. The potential effects of COVID 19 could also impact Westwater in a number of other ways including, but not limited to, laws and regulations affecting business, the availability of future borrowings, the cost of borrowings, and potential impairment of the carrying value of long-lived tangible assets.
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This pandemic, and the resultant uncertain economic conditions it has created, could adversely affect our operations, major facilities, or employees’ health. Westwater has the following priorities while managing business activities during this period of volatility and uncertainty:
● | First, to ensure the health and safety of our employees and the communities where they work. |
● | Second, to work with our business partners to maintain the advanced graphite product development schedule in a safe and measured manner. |
● | Third, to ensure the Company has access to adequate financial liquidity to support key operations and business activities. |
Westwater’s corporate business activities are largely unaffected at this time.time by the COVID-19 pandemic. Prior to March 1, 2021, Westwater reduced utilization of its offices and remote working arrangements were instituted to ensure that some employees were able to work remotely using systems that already were in place. On March 1, 2021, Westwater reopened its Centennial corporate facility and allowed employees to return to the office to work together with appropriate health protocols in place. Westwater’s continued focus on the health and safety of employees, the safety of operations, and the safety of the communities in which our employees live and work remains paramount. To that end, Westwater has continued to restrict unnecessary travel, and ensured that employees are permitted to take time off due to illness or the illness of those around them without penalty.
To the extent that the COVID-19 pandemic continues or worsens, local governments or governmental agencies may impose additional restrictions. The result of COVID-19 and those restrictions could result in a number of adverse impacts to Westwater’s business, including but not limited to additional disruption to the economy, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable. As a result, it may be challenging to obtain and process raw materials to support business needs, and individuals could become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Governments may also impose other laws, regulations or taxes which could adversely impact Westwater’s business, financial condition or results of operations. The potential effects of COVID-19 could also impact Westwater in a number of other ways including, but not limited to, laws and regulations affecting business, the availability of future borrowings, the cost of borrowings, and potential impairment of the carrying value of long-lived tangible assets.
Equity Financings
Significant Capital Raises during the Quarterthree and nine months ended March 31,September 30, 2021
During the month of Januarythree months ended September 30, 2021, the Company sold 9.31.1 million shares of common stock for net proceeds of $47.3$4.0 million pursuant to the ATM Offering Agreement with Cantor. These shares were sold pursuant to a prospectus supplement filed on December 4, 2020 pursuant to Rule 424(b)(5) as a takedown off the Company’s shelf registration statement which had been declared effective by the Securities and Exchange Commission on December 1, 2020.
During the months of February and March 2021, the Company sold 3.8 million shares of common stock for net proceeds of $24.9 million pursuant to the Purchase Agreement (the “December 2020 PA”)PA entered into with Lincoln Park. These shares were sold pursuant to a prospectus supplement filed on December 4, 2020 pursuant to Rule 424(b)(5) as a takedown off
During the Company’s shelf registration statement which had been declared effective bynine months ended September 30, 2021, the Securities and Exchange Commission on December 1, 2020.
The receipt of combinedCompany received net proceeds in the amount of $72.2$81.9 million from these financingits equity facilities, has resultedresulting in a cash balance of approximately $118$119.0 million at March 31,September 30, 2021. The significant treasury balance has mitigated the Company’s capital risk through 2021 and 2022 as the Company’s budgeted pilot program for processing battery-grade
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graphite the DFS and the remaining budgeted product development costs are now fully funded, and thefunded. The Company will be able to makeanticipates making a substantial initial investment in the commercial graphite processing facilityProject in the latter halffourth quarter of 2021.
Transfer of Common Stock Listing to the NYSE American Stock Exchange
On March 8, 2021, Westwater Resources, Inc.,the Company, acting pursuant to authorization from its Board of Directors, determined to voluntarily withdraw the listing of the Company's common stock, par value $0.001 per share, from The Nasdaq Capital Market (“Nasdaq”) and transfer the listing to the NYSE American. The Company informed Nasdaq on March 8, 2021, of its intent to transfer the listing of its common stock to the NYSE American. The Company’s listing and trading of its common stock on Nasdaq ended at market close on March 18, 2021, and trading began on the NYSE American on March 19, 2021. The Company’s common stock continues to trade under the ticker symbol “WWR” on the NYSE American.
Turkish Government Taking of Temrezli and Sefaatli Licenses and Westwater’s Arbitration Filing and Proceedings
On January 27, 2020, Westwater filed a Claimant’s Memorial (the “Memorial”) in its arbitration proceeding against the Republic of Turkey (“Turkey”). The Memorial relates to Westwater’s request for arbitration submitted to the International Centre for the Settlement of Investment Disputes (“ICSID”) in December 2018 as a result of Turkey’s unlawful actions against Westwater’s investments at the Temrezli and Sefaatli uranium projects owned by Westwater’s Turkish subsidiary Adur Madencilik Limited Sirketi.
The Memorial sets forth the basis for Westwater’s claims under the treaty between the United States and Turkey concerning the reciprocal encouragement and protection of investments and international law generally, as well as the basis for the jurisdiction of the tribunal constituted on May 1, 2019 following ICSID’s registration of Westwater’s request for arbitration. The Memorial also establishes the reparations owed by Turkey for breach of its international obligations towards Westwater, consisting of no less than $36.5 million, plus costs and post-award interest, as compensation for Westwater’s resulting loss of its investment. Accompanying the Memorial is an expert report regarding the reparations owed to Westwater. In determining the amount of Westwater’s loss, the expert report considered (i) the projected future cash flows from the expropriated projects, discounted to present value by a risk-adjusted discount rate, (ii) valuations from transactions for similar projects, and (iii) in the case of the Sefaatli project, the amounts invested in the project.
On March 11, 2020, Turkey filed a request to bifurcate the arbitration proceeding, and on March 30, 2020, Westwater filed a response in opposition to Turkey’s request for bifurcation. On April 28, 2020, the arbitral tribunal denied Turkey’s bifurcation request. On May 13, 2020, Turkey filed with the arbitral tribunal a request, which Westwater elected not to oppose, to extend the date on which their Counter-Memorial must be filed (and to change dates for subsequent pleadings as well as document production and witness identification deadlines), which the tribunal approved on June 3, 2020. As a result of these decisions by the tribunal, Turkey filed its Counter-Memorial on September 14, 2020. Westwater filed its reply to the Counter-Memorial on March 17, 2021. The hearing on the substantive issues and damages is scheduled for September 13-17, 2021.
RESULTS OF OPERATIONS
Summary
Our consolidated net loss from continuing operations for the three months ended March 31,September 30, 2021, was $5.4$4.6 million, or $0.190$0.13 per share, as compared with a consolidated net loss from continuing operations of $3.3$3.4 million, or $0.82$0.42 per share for the same period in 2020. The $2.1$1.2 million increase in our consolidated net loss from continuing operations was due primarily to increases in general and administrative, arbitration, exploration, and product development expenses; offset partially by an unrealized gain related to the respective priorenCore common stock of $0.5 million.
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For the nine months ended September 30, 2021, our net loss from continuing operations was $13.4 million, or $0.42 per share, as compared with a net loss from continuing operations of $6.9 million, or $1.18 per share for the same period in 20202020. The $6.5 million increase in our net loss from continuing operations was due primarily due to an increaseincreases in product development, costs, arbitration, costs and general and administrative, costs,and exploration expenses; offset partially by an unrealized gain related to the eliminationenCore common stock of costs from discontinued operations.$1.9 million.
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Product development expenses
ForProduct development expenses for the three month periodand nine months ended March 31,September 30, 2021, were $1.8 million and $5.8 million, respectfully, an increase of $0.2 million and $3.8 million compared to the same periods in 2020. Product development costs were primarily comprised of expenses for our DFS, which began in February 2021 and was spent oncompleted in October 2021, and our product development. Of that, approximately $1.2 million was relateddevelopment program continued through the first nine months of 2021. The product development program includes costs incurred to our graphite processing pilot programcollaborate with the remaining attributable tooutside experts for lab work, product testing other lab work, shipping, travel, and other auxiliary costs associated with the Coosa Project.
Arbitration Costs
During the first quarternine months of 2021, Westwater incurred arbitration related legal and expert consulting costs of $1.5 million. This represents an increase of 114% or $0.8$2.2 million in costs associated with the Request for Arbitration against Thethe Republic of Turkey since December 31,Turkey. This represents an increase of 152%, or $1.3 million in costs compared to the nine months ended September 30, 2020. For further reference, see discussion above in the Recent Developments section of this Part I, Item 2 andbelow in Part II, Item 1 below.1.
Mineral property expenses
Mineral property expenses were $0.1 million for both the three and nine months ended September 30, 2021, an increase of $0.1 million compared to the same periods in 2020. The increase in mineral property expenses was due to higher payments to land and surface owners for increased activities related to our exploration program.
General and Administrative Expenses
Significant expenditures for general and administrative expenses for the three and nine months ended March 31,September 30, 2021 and 2020 were:
| | | | | | | | | | | | | | | | | | | | | |
| | For the Three months ended | | | | For the Three months ended | | For the Nine months ended | | ||||||||||||
|
| March 31, |
|
|
| September 30, |
| September 30, |
| ||||||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||||
|
| (thousands of dollars) | |
| (thousands of dollars) | | |||||||||||||||
Stock compensation expense | | $ | 91 | | $ | — | | | $ | 299 | | $ | 142 | | $ | 594 | | $ | 170 | | |
Salaries and payroll burden | |
| 666 | |
| 767 | | |
| 748 | |
| 811 | |
| 2,007 | |
| 2,344 | | |
Legal, accounting, public company expenses | |
| 750 | |
| 653 | | |
| 575 | |
| 558 | |
| 2,090 | |
| 1,681 | | |
Insurance and bank fees | |
| 181 | |
| 167 | | |
| 146 | |
| 160 | |
| 490 | |
| 494 | | |
Consulting and professional services | |
| 204 | |
| 30 | | |
| 106 | |
| 46 | |
| 491 | |
| 149 | | |
Office expenses | |
| 94 | |
| 90 | | |
| 145 | |
| 128 | |
| 352 | |
| 329 | | |
Sales and marketing | |
| 20 | |
| 14 | | |
| 157 | |
| 97 | |
| 393 | |
| 196 | | |
Other expenses | |
| 78 | |
| 58 | | |
| 13 | |
| (1) | |
| 53 | |
| 16 | | |
Total general and administrative expenses | | $ | 2,084 | | $ | 1,779 | | | $ | 2,189 | | $ | 1,941 | | $ | 6,470 | | $ | 5,379 | | |
| | | | | | | | | | | | | | | | | | | | | |
(Less) General and adminitrative expenses from discontinued operations | | | — | | | (417) | | ||||||||||||||
(Less) General and administrative expenses from discontinued operations | | | — | | | (405) | | | — | | | (1,273) | | ||||||||
| | | | | | | | | | | | | | | | | | | | | |
General and adminitrative expenses from continuing operations | | $ | 2,084 | | $ | 1,362 | | ||||||||||||||
General and administrative expenses from continuing operations | | $ | 2,189 | | $ | 1,536 | | $ | 6,470 | | $ | 4,106 | |
General and administrative expenses for the three and nine months ended March 31,September 30, 2021, increased by $0.3 million and $1.1 million from the respective periodsame periods in 2020. The differenceincrease quarter over quarter is due primarily to higher costs
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related to an increase in stock compensation, and higher costs related to the Company’s sales and marketing efforts that began in the third quarter of 2020. The increase for the first nine months of 2021 compared to the same period in 2020 is due primarily to increased legal and consultinghigher costs related to an increase in stock compensation, higher public company expenses related to the annual shareholder meeting and moving to the NYSE American from the NASDAQ, and higher costs related to the Company’s Coosa Graphite Project.sales and marketing efforts that began in the third quarter of 2020. These increases for the three and nine month periods were offset partially by lower personnel costs due to the sale of our uranium business at December 31, 2020.
Net Loss from Discontinued Operations
Westwater sold its uranium business on December 31, 2020. As a result, the net loss from discontinued operations was $6.4 million and $8.6 million for the three and nine months ended September 30, 2020, respectively. See Note 3 to the financial statements for additional information.
FINANCIAL POSITION
Operating Activities
Net cash used in operating activities was $4.9$13.0 million for the threenine months ended March 31,September 30, 2021, as compared with $3.5cash used in operating activities of $10.1 million for the same period in 2020. The $1.4$2.9 million increase in cash used in operating activities was due primarily due to increased graphite product development, expenses,exploration, general and administrative, expenses and arbitration costs in 2021 compared to 2020.costs.
Investing Activities
Net cash provided byused in investing activities was $0.3decreased by $0.1 million for the threenine months ended March 31,September 30, 2021, with no investing cash flows foras compared to the same period in 2020. The sole investing activitydecrease was a result of cash deposits related to the two buildings that resulted in cash flows for the three months
22
ended March 31,were purchased on October 13, 2021, wasoffset by the receipt of $333,120$0.3 million held in escrow for the balance of the outstanding PPP loan and accrued interest at December 31, 2020 when the loan was transferred to enCore with the sale of uranium subsidiaries (see Note 3).Paycheck Protection Program. The loan was officially forgiven in full by the SBASmall Business Administration on March 31, 2021, and the entire balance of the escrow fund was transferred to the Company’s operating account.Company.
Financing Activities
Net cash provided by financing activities was $72.1$81.7 million for the threenine months ended March 31,September 30, 2021, resulting primarily from the proceeds ofdue to sales of common stock through the Company’s ATM Offering Agreement with Cantor and the Company’s December 2020 Purchase AgreementPA with Lincoln Park. Net cash provided by financing activities for the same period in 20192020 was $2.5$13.9 million. The $69.6$67.8 million increase was due to greater shelf registration capacity with which to offer registered shares under the Company’s financing agreement with Cantor and increased sales activity under the Company’s financing agreementsagreement with Lincoln Park induring the threefirst nine months of 2021 compared to the same period in 2020.
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 for the foreseeable future. The Company will also continue its cost reduction initiatives to identify ways to reduce its cash expenditures.
In 2016, the Company began to expand its business plan into acquisition and development of energy-related materials. BetweenFirst, in 2016 and 2020 the Company obtained lithium mineral leases in Nevada and Utah andas an exploration opportunity. Then, in 2018 the Company acquired Alabama Graphite Corp. and its Coosa Graphite Project in Alabama in 2018 for the purpose of developing and mining a commercial sized graphite mineral deposit and processing the flake graphite into advanced graphite products for use in batteries. In the third quarter of 2020, the Company executed the strategic decision to focus most of its resources on itsthe graphite business in Alabama, discontinuing its investment in its lithium mineral properties and announced a proposed transaction to sellselling its uranium business, enCore Energy Corp. (“enCore”).located in Texas and New Mexico, to enCore. As discussed in Note 3, the sale to enCore closed on December 31, 2020, and included the elimination of a $9.3 million bonding liability, the elimination of $5.2 million in asset retirement obligations, and the elimination of more than $4.0 million in annual expenditures related to reclamation and compliance
24
costs. The Company received approximately $1.8 million of enCore common stock and retained royalty interests on the New Mexico uranium properties as consideration for the sale. The Company retained its uranium interests in Turkey, which are subject to ongoing international arbitration proceeding.proceedings, in which the Company is seeking damages.
During the first quarternine months of 2021, the Company primarily focused on graphite process development activities including operation of thea pilot programsprogram for processing flake graphite into battery-grade graphite products and the kickoffa DFS on Phase I of a Definitive Feasibility Study (“DFS”) on the Coosa Graphite Project. The data generated and experience gained from operating the pilot programs will beprogram was used to inform the Phase I DFS that was completed in October 2021 and will also inform the requirements and specifications for building a commercial graphite processing facility.
On March 31,September 30, 2021, the Company’s cash balances werebalance was approximately $118$119.0 million. During the quarternine months ended September 30, 2021, the Company sold 9.3 million shares of common stock for net proceeds of $47.3 million pursuant to its Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co. (“Cantor”) and 3.86.1 million shares of common stock for net proceeds of $24.9$34.6 million pursuant to the Lincoln Park December 2020 PA (as defined below) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) (see Note 7).PA. As of March 31,September 30, 2021, the Company has no shares of common stock registered$50.0 million remaining available for salefuture sales under the ATM Offering Agreement and has sold approximately 19.9% of the outstanding shares9,700,252 of common stock as of the date ofavailable for future sales pursuant to the Lincoln Park December 2020 PA.
The December 2020 PA specifically provides thatSubsequent to September 30, 2021, and through the date of this release, the Company may not issue or sell anyhas sold 637,200 common shares for net proceeds of $2.3 million pursuant to its financing facility with Cantor Fitzgerald & Co., and liquidated its holdings of enCore common stock under the agreement if such issuance exceeds 19.99%for net cash proceeds of the shares of the Company’s common stock outstanding immediately prior to the execution of the December 2020 PA unless (i) shareholder approval is obtained or (ii) the average price of all applicable sales of common stock to Lincoln Park under the December 2020 PA equals of exceeds $6.15 per share. The Company has scheduled its Annual Shareholders Meeting for May 21, 2021 and has included a proposal in its Proxy Statement which seeks shareholder approval of the issuance of more than 19.99% of the shares of the Company’s common stock outstanding on December 4, 2020. The December 2020 PA provides the Company with a reliable source
23
of capital at low cost as compared to other sources, and the ability to access that capital when and as needed, which de-risks the Coosa Graphite Project.
The Company is also considering project financing to support primary funding of the capital expenditures for construction of the commercial plant set to occur in the second half of 2021. The alternative sources of project financing could include, but are not limited to, convertible debt facility or pursuing a partnership or joint venture. The Company may pursue any one of the forgoing options, others not listed, or a combination of one or more. There can be no assurance that the Company will be able to access project financing at terms acceptable to the Company or at all.
$3.6 million.
Management believes the Company’s current cash balance is sufficient to fund its planned non-discretionary expenditures through 2022. In addition to pursuing other project financing, theThe Company is evaluatinganticipates the continued use of the Cantor and Lincoln Park financing facilities for use in funding any required contributions by the Company to support project financing for construction of the commercial graphite processing facility. 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 to it in amounts sufficient to meet its needs, or on terms acceptable to the Company. Stock price volatility and uncertain economic conditions caused by the COVID-19 pandemic, including the recent emergence of variant strains of the virus, could significantly impact the Company’s ability to raise funds through equity financing. Market conditions, including but not limited to, inflation and supply chain disruptions could adversely impact the planned cost of the Company’s commercial graphite processing facility. Along with evaluating the continued use of the Cantor and Lincoln Park financing facilities, the Company may consider project financing to fund the construction of the Project. The alternative sources of project financing could include, but are not limited to, convertible debt or pursuing a partnership or joint venture. In the event funds are not available for project financing to complete construction of the commercial graphite processing facilityProject in 2022,2023, the Company willexpects to be able to fund its non-discretionary expenditures, however, the Company may be required to change its planned business development strategies.
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, the abilitypotential effects of the Company to acquire additional properties or partner with other companies,COVID-19 pandemic, the constructionstrategic goals of pilot plant facilitiesthe business, arbitration matters, costs of Phase I of the Project and constructionestimated completion date, expected production quantities for Phase I of commercial production facilities,the Project , the realization of expected benefits from recent business combinations 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” 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
25
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 ability to obtain contracts with customers; |
● | available sources and transportation of graphite feedstock; |
● | government regulation of the mining and processing industries in the United States; |
● | our ability to maintain and timely receive mining and other permits from regulatory agencies; |
● | the ability to control costs and avoid cost and schedule overruns during the development, construction and operation of the Project; |
● | risks associated with our operations and the operations of our partners, including the impact of |
● |
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; and |
● | currently pending or new litigation or |
as well asIn addition, other factors are described in our Annual Report on Form 10-K for the year ended December 31, 2020, 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
26
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 as of March 31,September 30, 2021.
Changes in Internal Controls
There were no changes in our internal control over financial reporting during the quarternine months ended March 31,September 30, 2021 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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PART II - OTHER INFORMATION
Information regarding reportable legal proceedings is contained in Part I, Item 3, “Legal Proceedings,” in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to the legal proceedings previously disclosed in the Annual Report on Form 10-K, other than as set forth below.
On December 13, 2018, Westwater filed a Request for Arbitration against the Republic of Turkey before the International Centre for the Settlement of Investment Disputes (“ICSID”), pursuant to the Treaty between the United States of America and the Republic of Turkey concerning the Reciprocal Encouragement and Protection of Investments. The Request for Arbitration was filed as a result of the Republic of Turkey’s unlawful actions against the Company’s licenses for the Temrezli and Sefaatli uranium projects owned by Westwater’s Turkish subsidiary Adur Madencilik Limited Sirketi (“Adur”). Specifically, in June 2018, the Turkish government cancelled all of Adur’s exploration and operating licenses with retroactive effect, rendering Westwater’s investment in Adur effectively worthless. While the Turkish authorities had variously issued, renewed and overseen these licenses for more than a decade, in June 2018 they asserted that those licenses were issued by mistake and that the Turkish government has a governmental monopoly over all uranium mining activities in Turkey, in violation of Westwater’s rights under both Turkish and international law. Westwater reached out on numerous occasions to the Turkish government to resolve this dispute amicably, to reinstate the licenses and to remedy Turkey’s unlawful actions, but to no avail.
As a result, on December 13, 2018, Westwater filed before ICSID its arbitration request against the Republic of Turkey. On December 21, 2018, ICSID registered Westwater’s Request for Arbitration. On May 1, 2019, the three-member ICSID Panel for the arbitration was established – one of the panel members was selected by Westwater, another was selected by Turkey, and the third panel member (serving as the Chair) was selected by the two party-appointed arbitrators. On September 9, 2019, the ICSID Panel issued Procedural Order #1, which places the locale for the proceeding in Washington, DC, and sets numerous dates for both parties to make various filings.
On January 27, 2020, Westwater filed its Memorial, which is a document that sets out Westwater’s case. On March 11, 2020, Turkey filed a request to bifurcate the arbitration proceeding, and on March 30, 2020, Westwater filed a response in opposition to Turkey's request for bifurcation. In Procedural Order #2 issued on April 28, 2020, the arbitral tribunal denied Turkey’s bifurcation request. On May 13, 2020, Turkey filed with the arbitral tribunal a request which Westwater elected not to oppose, to extend the date on which their Counter-Memorial must be filed (and to change dates for subsequent pleadings as well as document production and witness identification deadlines), which the arbitral tribunal approved on June 3, 2020. As a result of these decisions by the tribunal, Turkey filed its Counter-Memorial on September 14, 2020. Westwater filed its reply to the Counter-Memorial on March 17, 2021. The hearing on the substantive issues and damages is scheduled forwas conducted during the week of September 13-17, 2021. The Company does not expect a formal ruling on the matter until the second half of 2022.
27
There have been no material changes from those risk factors set forthSee RISK FACTORS in our Annual Report onItem 1A of the Form 10-K for the year ended December 31, 2020.2020 (“Form 10-K”) for a discussion of the risk factors of the Company. Except as described below, there have been no material changes to these risk factors from those previously disclosed in the Form 10-K.
The Company may incur unexpected costs or delays in the construction of the Coosa Graphite Project production facility.
The Company is in the process of developing and anticipates commencing construction of the Coosa Graphite Project’s production facility in the fourth quarter 2021. The completion of the Coosa Graphite Project’s production facility without delays or significant cost overruns involves substantial risks that may occur, including the accuracy of the estimates and findings in the Definitive Feasibility Study; successful negotiation of construction contracts; challenges with managing contractors and vendors; subcontractor performance; adverse weather conditions and natural disasters; contractor and/or vendor delays; increased costs, shortages, or inconsistent quality of equipment, materials, and labor; delays due to judicial or regulatory action; nonperformance under construction or other agreements; engineering or design problems; negative impacts of the COVID-19 pandemic or future pandemic health events; work stoppages; continued public and policymaker support for the project; environmental and geological conditions; and challenges with start-up activities and operational performance. Additionally, the Coosa Graphite Project’s production facility includes the Company’s improved method for purification of graphite concentrate and is a design process that has not previously been constructed.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
26
None.
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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 |
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101.PRE: | | XBRL Taxonomy Extension Presentation Linkbase Document |
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101.PRE: | | XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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: | By: | /s/ Christopher M. Jones | |||
| | Christopher M. Jones | |||
| | President and Chief Executive Officer | |||
| | | |||
Dated: | By: | /s/ Jeffrey L. Vigil | |||
| | Jeffrey L. Vigil | |||
| | Vice President - Finance and Chief Financial Officer |
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