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

Hello, everyone, and welcome to Water Tower Research's fireside chat. I am Dmitry Silversteyn, senior analyst at Water Tower, covering the chemicals and materials technology industries. The rapid pace of growth and adoption of EVs, electric vehicles, characterized by a triple-digit growth of this market we've seen in China and double-digit growth in many other parts of the world, including Europe and North America, are putting increasing pressure on the material supply chain, raw material supply chain, especially for battery grade metals. Also, more recently, the governments across the world are beginning to realize the geopolitical risk of having 60% to 100% of battery material supply chain go to China and are enacting rules and programs, including funding availability to domesticate or at least attempt to domesticate the battery supply chain in their respective countries. One company working on that in the U.S. is Westwater Resources. Joining me today is Jay Wago, Vice President of Sales and Marketing for Westwater Resources. Welcome, Jay.

Thank you for having me.

Jay, let's start with learning a little bit about your background. Can you talk to us about your career up to this point, what industries have you worked in? And how did you get involved with Westwater Resources?

Yes, certainly. So I have a bit of a unique background. I grew up in Japan, but spend of my most professional and adult life in the U.S. So after graduating from university in the '90s, I started my career at Celgard, which is formerly [indiscernible] U.S.-based specialty chemical company that makes battery separators. After spending about 10 years with Celgard, I started to expand my career more into sales, business development, global business management and the senior leadership. And worked for companies like ITOCHU Corporation, which is a large Japanese conglomerate, Dow Chemical Company and most recently, Albemarle Corporation, which is known for lithium. I got to deal with the broad range of battery materials like cathode and lithium products as well as battery production equipment. And I really find myself lucky that I was able to build my career this way because industry, network and institutional knowledge, so to speak, are very important, especially in the emerging U.S. market. When I started my career in the '90s, lithium-ion batteries was mainly used for small devices like camcorders and [indiscernible], if you remember. But today, this battery technology is used for a lot more devices that we use every day. For example, you could be talking with somebody on FaceTime while your Roomba cleans your room, right? Also, lithium ion batteries, transforming the EV industry, and I hope you can see in my [indiscernible].

So working with potential customers and in your role as a VP of Sales and marketing, that's -- I assume it's primarily what it is that you do and spending time recently at the Benchmark Minerals conference. What are some of the things that you're hearing about the graphite market, where it is currently, where it's heading. What are the opportunities for Westwater Resources?

Yes. So I've been with the Westwater Resources since July 2020, and I have seen a significant shift in customer interest in graphite since 3Q, 4Q, last year, so about a year ago. The [indiscernible] model is that graphite anode otherwise known as Active Anode Material is 50% of lithium-ion battery materials by weight and contributes to battery performance in multiple ways. For the most part of the last several years, our customers may battery- lithium-ion batteries, really have to pay more attention to cathode and intermediate raw materials needed for cathode because cathode accounts for 40% of battery material cost. And the market price of these materials like lithium and nickel has risen quite a bit because of the constrained supply. But today, our customers are focusing more keenly on the other half, which is a graphite. So the Benchmark Mineral conference that took place in November was well attended, particularly the Graphite Anode conference. And some people were saying that graphite is the next lithium. And I believe that there's something to be said about this.

Okay. So in your experience, you have come from Albemarle, which is a major supplier of lithium to the capital part of the market. But in your experience, can you compare what's going on with graphite today to perhaps early-stage lithium market or perhaps a nickel market or something similar that investors can sort of monitor the last 2, 3 years that will happen in those markets as a way to judge what may be coming in your graphite?

Yes, that's a really good question. So I can definitely compare graphite to lithium since I dealt with lithium for several years before joining Westwater Resources. Lithium soaps mainly lithium-carbonate and lithium hydroxide are key ingredients for cathode. Before 2015 or '16, cathode portion in the total lithium demand was relatively small compared to other traditional applications like grease, glass production, cement and some other industrial and medical applications. But after 2016 or '17, cathode became a major segment of lithium soaps and industry also experienced constrained supply due to cyclicality associated with the specialty chemicals business. If you think about specialty chemical business, it's CapEx-intensive and these companies typically don't want to invest in new capacity until they see strong demand and attractive market price, which sort of unintentionally causes supply-demand imbalance. So [indiscernible] to this extent, the market price for lithium carbonate was about $5 per kg. But today, it is about 80, 80 kg and expected to stay at the same level or maybe slightly increase in the next 10 years. So over the market dynamics to lithium and graphite, not completely apple to apple. What was happening to lithium back in 2016 or '17 could happen to graphite in 2023 next year. So the improvement factor that could trigger this is the graphite for battery application is expected to account for more than 50% of total graphite demand in 2023. So this is exactly what happened to lithium in 2016 or '17. So I believe this could be sort of tipping or turning point of graphite.

That's very interesting because 50% is a quite remarkable number. I think currently, battery end market overall accounts for maybe about 20% of graphite overall graphite demand. So this is a very material increase. I mean you're talking about probably more than doubling the demand just from the EV, cathode, I mean, anode market alone. Am I doing the math right in my head?

Yes, right.

Okay. So I talked at the top of this program about governments around the world, including the U.S., realizing that dependence on China is not a good thing. Geopolitics, aside, there is also the long supply chain and logistical issues that have come to light during the [ space ] COVID pandemic and the subsequent events. So many countries, including the U.S. have started to sort of devote attention and devote capital to trying to establish a domestic supply chain and domestic resources for these materials. Recently, in the U.S., we've got the Inflation Reduction Act that has been into law. So looking at sort of the nitty-gritty of that app, what are the policies or specific parts of that act that are beneficial to the sort of the emerging energy independence industry that start -- that's trying to get established in the U.S. What are the impacts of the IRA policy you think on the graphite market in general and maybe even broader speaking on the battery market. And what is the overall sense of how this is going to impact investment decisions as well as improve your ability to perhaps sign additional customers having the U.S. manufacturing base.

Right, so there are basically 2 important provisions in the IRA that was signed in August. The one is, this is extended provision, 30D, which is for clean vehicle tax credit. So this now includes battery mineral and components content and certain percentages of minerals that need to be extracted, processed or even recycled in North America or FDA country. So that's one important provision - a renewed provision. And this definitely accelerated or maybe intensified the localization effort of the U.S. battery supply chain by major lithium-ion battery producers and OEMs, which are our potential customers. So potential customers have become much more keen on securing graphite supply. And yes, we're talking with the multi-potential customers…

I'm sorry, go ahead.

All right. Sorry. Another provision, which is 45X that is newly introduced, advanced manufacturing production tax credit, is also directly beneficial for us because we can get a tax credit for producing critical minerals, which obviously include graphite.

Jay, you mentioned the tax credit that's part of the Inflation Reduction Act. As a [ pending ] manufacturer of graphite materials, Westwater has put out a document talking about sort of the internal rate of return on the Phase 1 of the plant that they're building. But I would assume that with this tax credit, the economics that were presented in that document would actually be improved. Am I correct?

Yes, correct. So we are constructing a graphite processing plant in Alabama. So we can definitely benefit from this 45x provision. We will be operating mining site, pretty close to -- we're about 30 miles away from a graphite processing plant. So we can benefit from this in 2 ways essentially.

That's great. That's very helpful. So we've covered some ground here in terms of getting people familiar or at least whetting their appetite to learn more about the graphite market and the graphite industry in general in the emerging U.S. battery and EV market. Where could people go to find out or learn more about these topics?

Yes, I definitely encourage people to visit our website, www.westwater resources.net. That's where you can find a lot of information.

Okay. Thank you. And any final thoughts as we end this conversation, how can people reach out to you if they have follow-up questions?

Yes. So we're talking about the Benchmark Mineral conference earlier and when I attended this conference in November, I really felt a lot of enthusiasm from the participants, mine is included. And the way they're reading the market, the graphite market that is really consistent. And these people also like I may say, industry veterans like me. So it means a lot. And I hope this also resonates with our investors and because the graphite journey in the next several years so to speak is looking pretty exciting.

Thank you. Thank you, Jay. Thank you, gentlemen and ladies, for joining us for this fireside chat. Graphite market in the U.S. is certainly in the very early stages of development and Westwater Resources seems to be leading that development. And we would encourage you to visit the company website to learn more about the company and the opportunity for investment. Thank you very much.

Thank you for having me.