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

Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources, Inc. conference call to discuss the Definitive Feasibility Study. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Chris Jones, President and CEO. Please go ahead, sir.

Thank you, Therese. And good morning, and thanks to all of you for taking the time to attend our conference call this morning. I have a short statement and would like to open up the call for your questions right after I finish. Note that there is no presentation associated with this particular conference call. Earlier this week, we announced results from our Coosa Graphite Project Definitive Feasibility Study, Board approval to proceed to build the project and the acquisition of 2 buildings at our site to aid in that construction. This is a very exciting time for us. We embarked on this venture with the idea to build a growth business that is sustainable, not only economically, but also in ways that serve growing markets for environmentally sound products utilizing our guiding principles. And they are safety, and that is of each other, of our environment, of the communities where we work, of our assets and our reputation. Cost management, which is the effective and efficient use of our shareholders' assets and focused on first quartile cost performance. And reliability and integrity, that's the highest level of performance every day, improving our processes. And importantly, conservative promises well kept. To address the high rate of adoption for electric vehicles, we have adapted our business to increase the production of the graphite that goes into the batteries that power them. Existing battery plant capacity in the United States requires about 151,000 tonnes of graphite per year, all of which is produced outside the U.S., with most of that in China. New battery capacity already announced is expected to require some 211,000 metric tonnes of new graphite for batteries between now and 2025. In order to address this new capacity, we rescoped our feasibility study. Our team and our consultants rose to the challenge and produced results in a short period of time, the results we published earlier this week. Phase 1 of our new plant is designed to be capable of an expected 3,700 tonnes of graphite for lithium-ion batteries per year beginning in 2023. This is enough graphite, called CSPG, for about 40,000 electric automobiles per year. Phase 2, expected to be online in 2025, is planned to add 12,100 metric tonnes of capacity for a total of almost 16,000 metric tonnes per year. This is enough for about 170,000 electric vehicles. We have planned for an expenditure of $202 million over the next 17 months to build Phase 1, and expect a 15% internal rate of return on this first phase with over $20 million in annual cash flow. Phase 2 has not yet been the subject of a feasibility study. But pre-feasibility estimates indicate another $464 million will be required to build this added capacity. The larger combined facility is expected to generate a return of over 20% and $129 million in annual cash flow. For Phase 1, we have $119 million in cash on hand as reported in June 30, and expect to use our existing financial instruments to finance the remainder. Some blend of project financing, offtake agreements and other financing mechanisms will be explored and utilized for Phase 2. In short, we have most of what we need to execute Phase 1. In addition, we've worked to shorten construction time lines by acquiring 2 buildings adjacent to our site to be used for warehouse capacity and administration. Construction is expected to begin before the end of this year. In all, this is an exciting time for Westwater. Building this business was good for Westwater in the great state of Alabama. We are glad to get started. And with that, I'd like to take some questions.

[Operator Instructions] The first question comes from Debra Fiakas with Crystal Equity Research.

Of course, the news was exciting, and there are a number of questions that it brings about. I wondered if you could perhaps just answer a few questions about the budget. Does the purchase of the buildings -- the subsequent purchase of the buildings, which I understand is closing here imminently, does that change the $202 million budget for Phase 1?

In fact, the closing for those 2 buildings has already occurred. And no, it is included in the $202 million budget. But thanks for your question, Debra.

So then I also wanted to ask another budget question. I think you might have already touched on this. If you could just confirm that the preliminary figure of $464 million for Phase 2, that is an incremental figure. It is not inclusive of the $202 million? Did I understand that correctly?

Good question. Yes, Debra, you do. The $464 million is incremental to our current project and the Definitive Feasibility Study for Phase 2 is expected to happen as construction is done and operations are started on Phase 1 so that we can include not only more definitive and timely estimates for production, for costs and for CapEx, but also to include lessons learned during the construction of this first-of-its-kind facility.

Okay. Very good. And then, again, another sort of budget question. You've mentioned that you plan on doing quite a bit of hiring when the construction is completed, maybe 100 or so employees. Can you give us just some hints or ideas on what you think the payroll -- are they -- first of all, are these 100 employees needed for Phase 1? Or is this -- is that number really a -- a number for both Phase 1 and Phase 2? And then if you could just give us some ideas on what maybe your payroll costs might be based on the mix of expertise that you think will ultimately play out with that employee group?

You bet. First and in reverse order, if I may, the average wage in our facility for these 100 people is expected to be something around $21.15. That's not necessarily inclusive of all benefits. That is the -- that's the average hourly wage, if you will. Entry-level wages are slated for about $15 an hour. And we do expect that hiring on or about 100 people between now and the end of next year for Phase 1 is what's required. Phase 2, of course, is yet to be decided and will be part of the subject of our DFS.

Okay. Great. And if it's all right, I'd like to ask a couple more questions. I wondered if you could tell us what's going to cause you to pull the trigger on Phase 2? Is it a matter of technological success in Phase 1? Or are you going to be looking for certain kinds of demand conditions? Or are you going to be looking at your own order pipeline? What's going to cause you to move on to that Phase 2?

Well, I think, thankfully for us, the demand pipeline is crystal clear to us. The several hundred thousand tonnes of graphite demand in North America plus Europe and other places for these battery electric vehicles is certainly established. What we wanted to do is build our facility in a staged fashion. Remember that this technology we are using, while it's a grouping of older technologies to do certain aspects of the work, it is the cluster and the use of the combined technology that we want to finish and have a complete understanding for. Our pilot plant showed that this technology worked. We just want it to work in a production atmosphere, if you will. If we can decide and if we figure that our demand is higher for the products we make, it is possible for us to advance the project schedule for Phase 2. But I wouldn't regard that currently as probable. We really want to get Phase 2 right.

Okay. Very good. And then I also wanted to ask about the 2 products. You've got numbers in your press release where you provided us with quite a bit of information about the feasibility study and something of a summary of what it concluded. You have 2 products there. The CPSG, which is the coated, purified spherical graphite, and then a product that you call Fine Products from the SPG milling. Does that second category, that Fine Products, does that include the PMG that we have been hearing about so much and the product that had been under test by the battery manufacturer over this last few months? If you could just kind of provide us an update there would be helpful.

It certainly does include PMG as one of the fines products. We found that the market for the purified fines that result from our process was a little broader than we thought, albeit and many of them are industrial applications. And while we don't see price premiums for that fine product, it is certainly above normal industrial applications.

Okay. And then this last question, if you could help me understand the numbers, that you go from 8,050 metric tonnes of concentrate. And then you indicated in Phase 1, you'll have, for example, 7,500 metric tonnes of product. Is that finished product? Is that -- or just the purified micronized level? I'm trying to reconcile those 2 numbers because it seems like an exceptionally high conversion rate. Kudos to you, if you can manage that, though.

The 2 products that come out, basically, about half of your input graphite concentrate can be processed into CSPG. The remainder -- most of the remainder of what's left comes out as purified fines in Phase 1. And so it's kind of a bifurcated recovery. You get about half of the input tonnage into CSPG. The other half comes out as fines with some minor losses in that process on the order of less than 10% total.

The next question comes from Michael Porter with Porter, LeVay & Rose.

I've got a couple of e-mails this morning from some of our international investors, and I just wanted you to answer them so that when they do the recall, they can have the answers. The first, they wanted you to discuss basically the growth in the EV business in America and what the future looks like for it? And in coupling with that, to talk a little bit about your relationship with Alabama and Alabama's interest, if you will, in the battery manufacturing in the automobile industry.

You bet. And thank you for relating those questions. I think, first, the interest in Alabama has been heartwarming. All the way from the governor's office to the Department of Commerce to our elected officials at every level and business development groups within Alabama, we've had a tremendous groundswell of support. And that's been expressed in monetary terms. We've been able to negotiate over $34 million of tax subsidies and tax abatements from local and at the state level. We have secured some 74 acres of land at no cost to Westwater Resources in Alabama Graphite products, our subsidiary there. So I think suffice to say on the support end and our relationship with Alabama and Coosa County and the economic development groups there, it's solid. With regard to the EV market and how it is growing, I could challenge anybody not to go a day without reading an article about electric vehicles, about how sales are increasing worldwide and how different and essentially all automakers are in the process of developing an electric vehicle. That is -- the oldest manufacturer in the world, Daimler, to the newest manufacturers in the world, Tesla, Rivian and some of the others, and everybody in between. We expect that over the next 10 years or so, that the demand for these vehicles is going to grow at a 23% annualized growth rate. And when you think about that, that's a market that doubles every 3 or 4 years. And we want to be part of that. And this Phase 1 of our plan is designed to service some of that growth as it gets started and Phase 2 to compound that effort with far higher tonnage.

Okay. The second question that I received is asked me to ask you about in the September 21 release, you mentioned you're engaged with 40 potential customers and have some nondisclosure agreements. Can you expand upon that at all?

You bet. So I think a little explanation about a sales process is in order here. So we have a sales team in place and have had for more than a year to reach out and work with potential customers for this product. And yes, we have -- the numbers certainly, over 40 NDAs with various OEMs and battery manufacturers around the world. So there's active -- so certainly, there's active conversations through these nondisclosure agreements. I would warn everybody that the nature of a nondisclosure agreement is that we can't tell somebody with whom they are written. So it puts us in a little bit of a pickle on describing precisely who these folks are. But once you have the NDA in place and you can have fulsome discussions with potential customers and users of your product, the next phase of that is testing and we have samples in test with some of those customers as we speak right now. After testing is complete, and provided our products pass and we are confident that they will because our internal testing indicates that these are good products. These are good products for lithium-ion batteries. That then you can enter into discussions with potential users of those products for commitments to sell and to buy those products from us. So that's the basic process. Any time we are able to disclose things like binding agreements to sell products to a certain party or material announcements that affect our business, we will endeavor to make sure that we can disclose those as fast as we can for our investors' needs and continue the tradition of transparency that this company has developed over these last 9 years.

The next question comes from [ Michelle Gamand ] with -- a private investor.

I just wanted to know who is providing you with the raw material? And I just heard that you do not have any signed contract yet. Is that correct?

Thank you, Mr. [ Gamand ]. We do have a supplier for our raw material, and it is at the request of that supplier will keep that name confidential. So we're unable to tell you except to say that it is a non-Chinese source.

Are they from Canada or Australia?

I am unable to give you more information right now without violating our confidentiality agreement with our supplier, but I appreciate the question, nonetheless.

The next question comes from [ John Kristen ], a private investor.

Could you please give us an update regarding your legal proceedings against the country of Turkey and how that's going?

We certainly can. As most of our investors know, we entered into international binding arbitration with the Republic of Turkey a couple of 3 years ago. The case as it stands right now as the statements and the case work is essentially complete. We met with the panel in September and provided testimony and cross-examination of witnesses. And we would expect that the panel is going to render it's decision sometime between now and September of 2023.

The next question comes from Keith Kirkland with Hargrove Engineers.

I'm with Hargrove Engineering out of our corporate office in Mobile, Alabama. I'll just say that we're very excited for your decision to secure your business here in Alabama. I live about 30 miles south of the site location in Auburn, Alabama, and we are honored that Alabama is your decision for this facility. The question I have, obviously, it seems like the schedule for construction seems to be very aggressive, which is kind of normal. But can you give a better brush stroke picture of -- You mentioned construction to begin by the end of the year and maybe what the first quarter kind of looks like and from a construction standpoint.

You bet. And let me just say go Auburn. The construction schedule is, in fact, aggressive, but as we've worked with our engineering contractor Samuel, eminently doable. The first few items that we need to do to secure the long lead items. These are the machines that process the graphite and size it and shape it, if you will, the spherinizers in the mills. The furnaces that we use for final treatment of the products and those sorts of items. And so we will be -- well, we already are acting, but we'll be acting in person with those suppliers here over the next 3 to 4 weeks. In addition, we will be securing those companies that we want to bid on the construction, the engineering, procurement and construction of this particular product -- or project. And those kind of companies should expect information from us, certainly within the next 4 weeks so that they can evaluate and respond to those requests for proposals. So that's really where the team is right now in it's work life and work cycle, if that helps you at all, Keith?

Sure. It does. And my second question was specific about equipment. So I'm glad you touched on that. And again, I'll just reiterate, Hargrove Engineering is very excited to hopefully have a role in your facility here.

Well, thank you. And once again, as I said in my opening statement, and I will reiterate now, we are as happy as we can possibly be to be doing business in Alabama. Thank you for the welcome.

[Operator Instructions] The next question comes from [ Wistar Holt ], a private investor.

Can you talk a little bit more about your possible financing sources, equity, debt, when would you need to raise it? What kind of interest rate do you think you'd be staring at? If you did some equity, would you expect to have warrants attached to it? Can you sort of just touch on that?

I certainly can. We have 2 instruments in place for raising equity. And one -- the cost of that equity is around 2.5%. The other one runs between 10% and 14%. Blended rates at around 8% for equity in for this particular company. We are entertaining some debt discussions as well for the remainder of the money we need to raise for Phase 1. And as we develop a DFS for Phase 2, we'll be entering in detailed discussions around how to finance that. You should think of our overall capital plan for the -- for both phases to be something like 1/3 equity, 1/3 debt, at the project level, project types of rates, and 1/3 some version of offtake financing debt or equity, some blend of those 3 things on that final 1/3, if that helps you?

Yes. How soon would you need to start raising capital?

We have no immediate need to raise capital for the particular -- for Phase 1, we have $119 million in our treasury right now. And our total need over the course of 17 months of construction is on the order of $202 million plus about $5 million to run the business. So we can afford to be somewhat patient and take advantage of the markets as we need to. So I think more to come on that.

The debt rate, can you repeat that? What -- I mean, if you had -- if you wanted to raise the third debt, what kind of rates do you think you'd be staring at?

That is the $24 question. We have everything from conversations open at slightly above treasury rates to debt rates above that. So I think time will tell. One of the things we do in this particular business to reduce any kind of capital raise requirements and to work with debt providers is to derisk the business so that they can offer us and we can negotiate for lower rates than would be otherwise possible. So I think as you watch us over these 17 months of construction, and as we derisk this project going forward, we should see debt prices, interest rates lower than the high-risk capital that some other people seem to think there is out there.

The next question comes from Joe Granger with The Coach LLC.

Chris, I hope you have a great day, and welcome to Alabama. And I really appreciate the fact that you said go Auburn because I've been a lifelong suffering -- a football fan for about 70 years now. So come on down, love to see you down that way. My question is both -- is twofold. One, potential investment opportunity. And the other is, as a resident -- part-time resident of Lake Mitchell down in Clanton, Alabama. I'm sure you're familiar with part of the world by now. There's some great concern down there about the drilling operations. And I'm really encouraged here, you talked about the environmental safety and that sort of thing. And is there any way you can kind of calm the concerns that some of us have on Lake Mitchell about the drilling operation?

So the -- so yes, I can and for certain -- we're obligated by the state to maintain our discharges of any waters whatsoever at levels that will not add any pollution or degrade like Mitchell or the Coosa River in any way. So you can count on the state to do what they do best in regulating our work. Secondly, as you pointed out, we've been doing this a long time. I've been in the mining and energy business since 1977. So we have a lot of practice at keeping our word environmentally. And as we develop our exploration work on the Coosa site itself, which involves the drilling of some holes, you should be assured that we're doing that in a way that, a, conforms to the state; b, conforms to our ethic; and c, make sure that people can rest assured that when we do eventually design and then permit the mine, that they'll have opportunity to review our work to comment on our work and provide input to the permitting agencies as we go forward. But -- Remember that the mine is not due really to be developed until the '27, '28 time frame. So for these several years, we really need to figure out what's in that deposit. And and then design a mine that makes sure that we can be environmentally responsible in our development of that operation and make sure the economics are such that it's worth developing. I will also tell you that I am a member of the Coosa River keepers. And like you and everybody else down there, my interest is in fishing and in boating and in making sure that these waters, like the Coosa and other lakes and rivers in the region are kept in the kind of shape that we can hand over to our children and grandchildren.

Well, Chris, that is very comforting. I really appreciate it. And so come on down to Lake Mitchell, and we'll take you fishing.

This concludes the question-and-answer session. I would like to turn the conference back over to Chris Jones for any closing remarks.

Thank you very much. And I want to thank all of you for attending and asking your questions today. It is -- We're pretty proud of this project, and we are proud of the way it's headed, and we promise to keep you updated with progress as we go along. Again, thank you, and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.