Westwater Resources, Inc. (WWR) Earnings Call Transcript & Summary

Welcome, everybody, to the Westwater Resources Virtual Non-Deal Roadshow. I'm your host, Robert Kraft, on behalf of SNN Network. I'd like to introduce today's speaker. It is Christopher Jones, the CEO of Westwater Resources. It's a publicly traded company. The symbol is WWR on the NYSE American. With that, Chris, take it away.

Thank you, Bobby, and thank you, everyone, for attending today. This is Chris Jones. As Bobby said, CEO of Westwater Resources. I'd like to begin, of course, with some cautionary statements. Feel free to read them at your leisure. And let's dive right in, if we can. Westwater first and foremost is passionate about ensuring the safety of our employees. And to ensure the safety and health of our folks and the communities where we work, we've eliminated unnecessary travel. We've instituted health protocols for working together and instituted remote working arrangements for our employees based on CDC and state guidelines, which now include return to work at our Centennial Office full time as of March 1, 2021. We still ensure that our employees are permitted and encouraged to take off time due to illness or the illness of those around them without penalty. We ensure the health and safety and growth of our business by continuing to work with our business partners to maintain advanced battery graphite products development schedule. We're currently operating our pilot plant for the production of battery graphite materials and have currently produced 12.5 tons of materials that will soon be ready for submittal to our potential customers for testing and potential qualification. And we begin Coosa Graphite deposit exploration this month. Development and exploration drilling begins in just a few weeks for both graphite and vanadium. And we'll talk a little bit about that vanadium discovery as we go along. We continue to work to ensure adequate financial liquidity to support our key operations and business activities. And to that end, we have a cash balance of over $118 million as of March 26. And Westwater continues to proceed in its case for compensation from the Republic of Turkey for the seizure of our properties. Our hearing is scheduled for September of this year, and we request $36.5 million plus fees. A quick snapshot on where we sit right now with 32.3 million shares outstanding and a stock price of $5.60 as of yesterday, 364,184 options and warrants, a market cap of around $181 million. And as we said, cash and cash equivalents of $117 million and liquidity of almost 9 million shares a day. When we speak of our core values, they're first and foremost based on safety of each other, our environment, our assets, the communities where we work and our reputation. Cost and cost management is effective and efficient use of our shareholders' assets focusing on first quartile cost performance. And third, integrity, as the highest level of performance every day, improving our processes and importantly, conservative promises well kept. We are the owners of the leading graphite development property here in the United States, and we've developed a new, environmentally sustainable proprietary process for purifying our graphite and applied for U.S. patent. Our pilot program has operated since the fourth quarter of 2020 and has provided materials and quantity for evaluation and valuable information for our definitive feasibility study presently underway and scheduled for completion at midyear. But step-by-step through our pilot program, we've now purified almost 17,000 kilograms of material. This is the material we need for further battery graphite production. As of today, we are about 1,700 kilograms produced of our spheronized purified graphite in sizes of 10, 18 and 24 microns. Our delaminated expanded graphite or ULTRA-DEXDG, we have over almost 1,900 kilograms of precursor material produced, and we've produced around 350 kilograms of DEXDG. We've produced 10,500 kilograms of PMG products in sizes ranging from 5, 8, 10, 15, 30 and 44 microns in size. As it applies to our pilot program, it has already provided key inputs for the definitive feasibility study, as we said earlier, presently underway. We expect to run for another few weeks to finish up our DEXDG production and expect more than 13,000 kilograms of products for further testing by us and by our prospective customers. With regard to the definitive feasibility study, we've engaged Samuel Engineering to lead a group of engineering contractors in the U.S. and Germany to complete this definitive feasibility study for our Coosa projects commercial production plant. We expect this study to be completed midyear with a plus or minus 15% estimate of capital costs and operating expenses. Coosa Graphite project key attributes are, this proprietary technology for purifying graphite. It's a high -- we need to purify graphite from approximately 95% carbon in the concentrate to 99.98% purity before we can process it into battery materials. It is simple and a robust process, and it is environmentally friendly as it does not use harmful hydrofluoric acid or other harmful chemicals that are difficult to control in the process and harmful to the environment should they get lose. We have a cost advantage. Does the U.S. manufacture battery graphite? For the next several years, we'll be importing graphite as feedstock. But about 2028, we expect to have the mine in Coosa County up and operational, securing a U.S. domestic supply, fully integrated through battery graphite materials. And it's a sustainable process, environmentally sustainable, and our graphite can save over 200,000 tons a year of CO2 emissions as it's applied to electric vehicles. A little bit about that market and the electric vehicle market in particular. Transportation in general is experiencing a 23% annualized growth rate And that's expected over the next 10 years, predominantly in lithium-ion batteries and our qualification cycles tend to be in the 2-, 3- to 5-year range. If you look at U.S. adoption rates of electric vehicles right now at about 4%, that's double the previous year of 2%. Even if we see adoption rates level off at the 10% to 20% level, that is 5x the graphite currently needed or currently produced in the world, and we expect to be supplying into that market as it grows. You might see a Tesla coming down the road. I see 200 pounds of graphite and 800 pounds of batteries. Other energy storage systems are growing at 11%. And we can -- these are things like grid storage and enabling technologies for renewable power sources, such as solar and wind that need batteries to produce power when the wind doesn't blow and the sun doesn't shine. In consumer electronics, a mature market still growing at 3%, but a large market, nonetheless. There is approximately 15 grams of battery in the cell phone, that is there on your desk or there in your hands. And again, about 20% to 25% of that battery is graphite, the kind of material we make. And there are specialty markets in the defense, aerospace and other markets that we'll be pursuing as time allows. Graphite is a major component, though, of all types of batteries. That includes lead acid, which is the largest single battery market in the world into 2% to 3% addition of our graphite as a conductivity enhancer, improves the performance of that battery. Alkaline power cells, 10 billion units a year and there's a gram in every one. These are the power cells that power the smoke detector in your house, the flashlight you use when the lights go out and other low-use but important applications worldwide. And again, a 10 billion unit market. Coated spherical graphite, the CPSG that we make is a critical component, though, in lithium-ion batteries, this growing market as it grows with the transportation market. And the U.S. government has defined graphite as "critical to the nation's security and prosperity," and presidential executive orders asked the U.S. government agencies to act with alacrity. The Coosa Graphite project provides key advantages. It's a near-term source of domestic U.S. battery-grade graphite. Our plan is to break ground for the construction of our facility at the end of this year and to have it up and operational at the end of next. Westwater's graphite will be produced using environmentally sustainable processes right here in the United States. And we serve, as we said, all battery markets. Our vanadium discovery at Coosa 2 years ago could contribute revenues. Exploration, as we said, is planned starting in here in just a couple of weeks. We'll be drilling for both graphite and vanadium in a plan to remodel that deposit towards the end of this year for delivery of news, of course, and act as a catalyst there before Christmas. Our products come in 3 pieces. Our ULTRA-PMG, this is purified micronized graphite, it goes into all types of batteries as a conductivity enhancer. Our ULTRA-DEXDG is an extended version of that product. It also goes into all types of batteries as a conductivity enhancer, with some premium performance attributes that we're just exploring right now. In ULTRA-CSPG, the coated graphite that we were talking about, the material that goes in lithium-ion batteries, is a high-performance anode material, and our target market, as we said, is the growing electric automobile sector. We have a proprietary purification technology, and that is one of the fundamental differentiators for our business. We've applied for a provisional patent with U.S. Patent and Trademark office for this technology, and a provisional patent allows you to keep your patent and its description private and confidential for the duration of the evaluation period. Our purification methodology has a more sustainable footprint than those currently used in China, where environmentally damaging and expensive to manage hydrofluoric acid is used. This process yields graphitic carbon at a grade of at least 99.95%. It's a 3-step process that allows for flexible feedstock with consistent performance. And it consists of 3 process steps. The caustic roasting of the graphite concentrate sample, acid leaching of that roasted sample and then a thermal finish. In terms of project investment, we've raised a major share of the funding we need to construct a full-scale facility with a treasury of $117 million. We estimate that we have raised at least 2/3 of the capital we need through the equity markets and further funding can come from loans or loan guarantees, direct equity or joint venture financing as we go forward. Our project plan is, first and foremost, to get the feasibility study led by Samuel Engineering completed at midyear. We talked about our exploration drilling that's expected to begin here in a couple of weeks. And we will drill for both, as we said, graphite and vanadium for further work in defining this graphite and optimizing our mining method. Full-scale production from purchased feedstock is expected at the end of 2022, producing battery-grade graphite, and we expect to begin mining at the Coosa Graphite deposit in 2028. Slide 20 allows a bit of a graphic saying many of the same things, but it allows you to see a time line. But in addition, customer qualification using our pilot plant products is already underway, and it ensures the same product specifications and quality for our commercial plant. Natural graphite feedstock is secured with a contract through 2027, and ensuring financial liquidity is first and foremost amongst our goals right now. And by and large, we have been able to achieve that. Our team, tenured leaders in the energy minerals development, have been in the business for over 40 years, either in mining industry or mining plus hydrocarbon industries in some cases, developing properties -- of mature properties, developing new properties from start-up to full production. Jeff Vigil has been in the mining and manufacturing business for his adult life for the last 40 years. Dain McCoig joined us about a decade ago. He's been -- was formerly responsible for our uranium operations and has successfully made the transition to our graphite business. He's a mechanical engineer from the Colorado School of Mines. Cevat Er joined us 5 years ago as a result of a business acquisition we made in the Republic of Turkey. He is now living here in Colorado, and he is really -- as VP Tech, he's the brain power behind our patented or soon-to-be patented purification process. John Lawrence, a nuclear engineer and an attorney is our General Counsel. And once again, he's been in the business for more than 30 years. And our newest member of the team, Jay Wago, VP. He's our VP of Marketing and Sales. He joined us in July. He's been in the battery business for much of his adult life, and he came from Albemarle, where they sold other parts of the material into the batteries we intend to supply with graphite. Experience matters. Energy minerals exploration and development requires disciplined and diligent capital stewardship. We've restructured and recapitalized the company, repositioning Westwater as a green energy materials company with a laser focus on battery-grade graphite products. We have an experienced management team that demonstrated history in finance and green energy development from concept to production. And we've executed a proactive M&A program, the sale of noncore uranium properties to redeploy capital, expanding our resource base into green energy materials. But why Westwater as an investment? We have a battery-grade graphite development business with strong upside potential, ready for production at the end of 2022. Graphite has been designated a critical mineral by the U.S. government and will enjoy attention by government agencies as we go forward. We have a proven management team with experience in energy minerals development, operations and financial management. And you should anticipate catalysts in the remainder of this year; pilot plant operational results as we tie that business up over the coming weeks, Coosa exploration results, feasibility study results and Coosa Graphite project development and project milestone achievement as we go forward. With that, I'd like to open it up to questions.

And our first question is, could you please provide an update on the provisional patent? Beyond what we've already had in the presentation, I can tell you that it's a process with the U.S. Patent Office, and it is their timing for us to enjoy. But for the present and for the future, we have a technology that is simply ours and protected by that patent application. Second question. Will this PowerPoint be available later for me to review? You bet. It's to be posted on our website right now or very soon before the close of business today. Another question, when do we expect a contract? Well, that's a difficult question to answer. Now that we have samples to ship to our prospective customers, they can then go test, test for compatibility, test for purity, test for electrical performance of our graphite. And from those tests, assuming success, we can push forward conversations with those prospective customers and see if we can try to turn them into customers. But it's a process. And with that, that is just about -- let me see. I believe -- no, I'm sorry, there's more questions. Here's one. Is it possible another mineral will replace graphite? If what you mean by is the anode material in lithium-ion batteries, there's always a possibility of some substitution. Right now, we are attempting to substitute our natural graphite for some of the high-priced synthetic graphite they use in that anode. So as battery technologies develop, certainly, there is expected to be change. But the lithium-ion battery has been around for 30 years. It has undergone significant performance changes and improvements over that time, and those improvements are not over yet. And remember that a lot of battery manufacturers are already tooled to provide those lithium-ion batteries, and graphite is a critical component of those. There's a question about the original CapEx for this business was just over $41 million. Then it's -- now the projection is $118 million. And the question is why? Well, what we chose to do is expand the graphite CapEx and the graphite production capacity to include both the first 7,500 tons a year of graphite production and double it to 15,000 within those 2 years. So that really accounts for the change in scope of the project and the change in cost. What we're also able to do is increase the net present value of the project from approximately $400 million to approximately $600 million in that same preliminary estimate. So for a moderate increase in capital, we saw a substantial increase in value of the project. So that's the reason we've done what we did. And you should expect as we finish up our feasibility study to have a tighter estimate and a more accurate estimate of what the project potential is in the -- both from an economic and a quality perspective. And in terms of CapEx, I'd ask you all to stay tuned. We have a question here about who are our closest comps? What larger competitor do you aspire to be? We do not aspire to be any of our competitors. Let me be clear. About 80% of all battery graphite comes from China. Just about all of that is made using a process that has significant potential for harm to the environment. And we don't choose to compete with them at all on that basis. We'll produce a quality product for -- certainly from the CSPG standpoint, but also the PMG and the DEXDG standpoint without providing harm to the environment or the communities where we work or the folks with whom we work. And that's our ethic. And we can do so at a same similar or lower cost than our competitors. And our last -- or almost last question here is, have any performance tests been undertaken on the materials recently produced? Yes, they're undergoing tests right now. We have a lab in Seattle that provides, if you will, umpire testing. And we have a lab in Chicago that provides some of our testing as well. And our last question -- well, sorry, there's more questions as we come along. Thank you for those. How does solid-state battery development affects our business model? Solid-state batteries tend to use less graphite than other batteries. But we regard solid-state battery development as always 5 years away. We're waiting for one that truly works and truly acts as advertised. And then once again, as we talk about production systems, it will take a while to adopt and adapt that technology for use in cars and other devices that use lithium-ion batteries. I think that's a -- we adopt a wait-and-see approach. Near term, we can secure markets for the CSPG we make right now. We get a lot of questions about with whom we're speaking on sales. And let me just kind of answer a lot of the marketing questions in this way. Each of our samples and each of our prospective customers executes a nondisclosure agreement with us so that they can keep their testing confidential to them. And they ask us to keep their names confidential as well in return. It helps protect both sides of the equation, both parties in that action as they're exploring alternative sources, but it opens us up in a way that if they've secured a long-term contract with party A, and we can aid and augment with our graphite to make all of that product better, it's a win for the battery company and certainly a win for us. So we respect that confidentiality. And an interesting question here. The next year looks busy with the feasibility study and the construction of the processing facility. What do you think could be a potential stumbling block or a step that could take longer than expected? Well, there's 3 basic business risks here as there are for any business. One is financial. We've talked about mitigating that through our ability to raise capital in the equity markets, potentially the debt and joint venture markets as well. There's a sales risk, and we talked a lot about that in this call, wherein we've still got to sell the material into a market and have that tested and qualified. But the way we mitigated that is by producing these 12-or-so (sic) [ 12-or-so million ] tons of samples that we can then ship into these customers for real-world, real conditions testing. And then there's project execution, which is really where this company or this question comes from. So what you do when you're going to build a large facility or a complicated facility is you, first of all, run a feasibility study to make sure that you've identified all of the design criteria that need to be evaluated and executed on the ground. You then take that information and you put it to detailed engineering, and that takes some number of months. In the meantime, what you do is you order your long-lead items so that you can take care of any timing problems with the kind of items that take a long time to build. At the same time, you hire a qualified EPCM, and this is a company that acts as your construction company within Westwater as a contractor all the way from procuring materials, all the way through engineering so that you don't have to have this highly qualified, highly specialized team on staff for long periods of time. They come, they build the machine and then they leave utilizing your guys in the last phases of that construction as a commissioning and start-up team so that you have a qualified team to operate that facility. So those are the basic risks, the potential stumbling blocks and really some of our thinking on how we're going to mitigate that going forward. There's a question about a government contract. Is it possible that we could announce a government contract later this year? The government does not, at this point, procure large amounts of graphite. But what we see in government actions over the last several years, including both administrations and given a little extra oxygen perhaps in this new executive administration is a push to help convert more internal combustion engine-powered vehicles to battery electrics. We see that as a good thing. So while there may not be a government contract for procurement, what we see is government support for those that do buy graphite, and those are the guys that we're counting on. And lastly, as -- I do want to apologize. Lastly, is there a possibility a contract will be announced sometime this year? I'm assuming that's a contract for sales of materials. There's always a potential for a contract to be announced. But first of all, we need to do the hard work of getting this material into potential customers' hands, getting it tested. And in the event it needs to be changed, altered or terms need to be agreed to, a go-forward action on graphite. We'd love to have a conversation in that kind of detail with the customer right now. But let's walk before we run. Let's get this material in the hands of customers so that they can test it, so that they can talk to us about quantities, price and quality. I have no further questions in the queue, and I want to thank everybody for their offerings of questions and their asks for clarity. This is an opportunity for us to talk in detail about our project. And I've enjoyed this time I've spent with you. Thanks so much, and have a safe day.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.