Westwater Resources(WWR) - 2022 Q1 - Quarterly Report

DEFINITIONS This section provides a glossary of key terms and their meanings used throughout the report Key Terms and Meanings | Term | Meaning | | :--- | :--- | | Annual Report | Westwater Resources, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2021 | | AGP | Alabama Graphite Products, LLC, an Alabama limited liability company and wholly-owned subsidiary of Westwater Resources | | ATM Offering Agreement | Controlled Equity Offering Sale Agreement between Westwater Resources and Cantor Fitzgerald & Co. dated April 14, 2017 | | Cantor | Cantor Fitzgerald & Co. | | Coosa Graphite Deposit | The Company's graphite mineral deposit located near Rockford, Alabama | | EU Critical Raw Minerals List | The list of raw materials that are crucial to Europe's economy published by the European Commission | | Kellyton Graphite Plant | The Company's planned battery-grade graphite processing facility near Kellyton, Alabama | | Graphite | A naturally occurring carbon material with electrical properties that enhance the performance of electrical storage batteries, listed on the US Critical Minerals List as well as the EU Critical Raw Materials List | | Gross acres | Total acreage of land under which we have mineral rights. May include unleased fractional ownership | | Lincoln Park | Lincoln Park Capital Fund, LLC | | U.S. Critical Minerals List | The list of critical minerals that are crucial to the United States of America economy published by the Department of Interior | | Vanadium | A rare-earth metal used as a strengthening alloy in steelmaking, and in certain types of batteries, listed on the US Critical Minerals List | | Westwater Resources | Westwater Resources, Inc. | | 2020 Lincoln Park PA | Purchase Agreement dated as of December 4, 2020 between Westwater Resources and Lincoln Park Capital Fund, LLC | - The terms "we", "us", "our", "WWR", "Westwater", "Corporation", or the "Company" refer to Westwater Resources, Inc. and its subsidiaries[11] - All dollar amounts in this report and consolidated financial statements are stated in U.S. dollars[13] PART I — FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2022 ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and stockholders' equity, along with accompanying notes detailing accounting policies, liquidity, property, common stock, stock-based compensation, earnings per share, commitments, and leases for the three months ended March 31, 2022 Condensed Consolidated Balance Sheets This table presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of March 31, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets (Thousands of Dollars) | ASSETS | March 31, 2022 | December 31, 2021 | | :--------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $115,993 | $115,293 | | Total Current Assets | $116,726 | $115,613 | | Net property, plant and equipment | $31,663 | $14,479 | | Total Assets | $148,581 | $132,983 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total Current Liabilities | $8,176 | $5,324 | | Total Liabilities | $9,602 | $6,785 | | Total Stockholders' Equity | $138,979 | $126,198 | | Total Liabilities and Stockholders' Equity | $148,581 | $132,983 | Condensed Consolidated Statements of Operations This table outlines the company's financial performance, including operating expenses, other income, and net loss for the three months ended March 31, 2022, and 2021 Condensed Consolidated Statements of Operations (Thousands of Dollars, except per share) | Operating Expenses | For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | | :--------------------------------- | :---------------------------------------- | :---------------------------------------- | | Product development expenses | $(233) | $(1,823) | | Exploration expenses | $(208) | $(145) | | General and administrative expenses | $(2,211) | $(2,084) | | Arbitration costs | $(142) | $(1,532) | | Total operating expenses | $(2,816) | $(5,585) | | Total other income | $7 | $195 | | Net Loss | $(2,809) | $(5,390) | | BASIC AND DILUTED LOSS PER SHARE | $(0.08) | $(0.19) | | WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 36,757,352 | 28,597,938 | Condensed Consolidated Statements of Cash Flows This table details the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2022, and 2021 Condensed Consolidated Statements of Cash Flows (Thousands of Dollars) | Cash Flow Activity | For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net Cash Used In Operating Activities | $(2,701) | $(4,850) | | Net Cash (Used In)/Provided By Investing Activities | $(12,123) | $333 | | Net Cash Provided By Financing Activities | $15,524 | $72,053 | | Net increase in Cash, Cash Equivalents and Restricted Cash | $700 | $67,536 | | Cash, Cash Equivalents and Restricted Cash, End of Period | $115,993 | $117,861 | Condensed Consolidated Statements of Stockholders' Equity This table presents changes in stockholders' equity, including common stock, paid-in capital, and accumulated deficit, for the three months ended March 31, 2022, and 2021 Condensed Consolidated Statements of Stockholders' Equity (Thousands of Dollars, except share amounts) | Metric | Balances, January 1, 2022 | Net Loss | Common Stock Issued, Net | Stock Compensation Expense | Minimum Withholding Taxes | Balances, March 31, 2022 | | :---------------------------------------- | :------------------------ | :------- | :----------------------- | :------------------------- | :------------------------ | :----------------------- | | Common Stock Shares | 35,279,724 | — | 7,446,087 | 91,773 | — | 42,817,584 | | Common Stock Amount | $35 | — | $8 | — | — | $43 | | Paid-In Capital | $468,578 | — | $15,548 | $66 | $(32) | $484,160 | | Accumulated Deficit | $(342,157) | $(2,809) | — | — | — | $(344,966) | | Treasury Stock | $(258) | — | — | — | — | $(258) | | Total | $126,198 | $(2,809) | $15,556 | $66 | $(32) | $138,979 | | Metric | Balances, January 1, 2021 | Net Loss | Common Stock Issued, Net | Stock Compensation Expense | Minimum Withholding Taxes | Balances, March 31, 2021 | | :---------------------------------------- | :------------------------ | :------- | :----------------------- | :------------------------- | :------------------------ | :----------------------- | | Common Stock Shares | 19,172,020 | — | 13,107,270 | 57,186 | — | 32,336,476 | | Common Stock Amount | $19 | — | $13 | — | — | $32 | | Paid-In Capital | $383,723 | — | $72,190 | $91 | $(150) | $455,854 | | Accumulated Deficit | $(326,013) | $(5,390) | — | — | — | $(331,403) | | Treasury Stock | $(258) | — | — | — | — | $(258) | | Total | $57,471 | $(5,390) | $72,203 | $91 | $(150) | $124,225 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Basis of Presentation (Note 1) This note describes the accounting principles and standards used in preparing the interim financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and should be read in conjunction with the audited financial statements in the Annual Report[22] - The Company is evaluating ASU 2016-13 and ASU 2018-19, effective after December 15, 2022, which will change how credit losses are accounted for financial assets and clarify treatment for operating lease receivables[24][25][26] Liquidity (Note 2) This note discusses the company's ability to meet its short-term and long-term financial obligations and its funding strategies - Since 2009, the Company has relied on equity financings, debt financings, and asset sales to fund operations and expects to continue this reliance for the foreseeable future[27] - During Q1 2022, the Company continued construction of the Kellyton Graphite Plant (expected completion Q2 2023) and completed drilling for the Coosa Graphite Deposit exploration project (technical study expected by year-end)[28] Cash Balance and Equity Financing (Q1 2022) | Metric | Amount (thousands of dollars) | | :------------------------------------ | :---------------------------- | | Cash balance (March 31, 2022) | $116,000 | | Net proceeds from common stock sales (Q1 2022) | $15,600 | | Net proceeds from common stock sales (post Q1 2022) | $9,000 | | Shares sold (Q1 2022) | 7.4 million | | Shares sold (post Q1 2022) | 4.4 million | - Management believes current cash is sufficient to fund non-discretionary expenditures through 2022 and is considering various project financing options (debt, convertible debt, government loans/grants, partnerships) for the Kellyton Graphite Plant[32][33] Property, Plant and Equipment (Note 3) This note details the company's fixed assets, including mineral rights, other property, and construction in progress Net Book Value of Property, Plant and Equipment (Thousands of Dollars) | Category | March 31, 2022 | December 31, 2021 | Change | | :-------------------------- | :------------- | :---------------- | :----- | | Mineral rights and properties | $8,972 | $8,972 | $0 | | Other property, plant and equipment | $4,553 | $4,490 | +$63 | | Construction in progress | $18,138 | $1,017 | +$17,121 | | Total | $31,663 | $14,479 | +$17,184 | - During Q1 2022, manufacturing of equipment began, and $2.7 million in cash deposits (as of Dec 31, 2021) were reclassified to construction in progress[38] - No impairment of long-lived assets was deemed necessary for the three months ended March 31, 2022, or 2021[39] Common Stock (Note 4) This note provides information on the company's common stock activities, including sales and proceeds from equity offerings - No shares were sold under the 2020 Lincoln Park Purchase Agreement in Q1 2022, compared to 3.8 million shares for $24.9 million in Q1 2021[43] Common Stock Sales via ATM Offering Agreement | Period | Shares Sold (millions) | Net Proceeds (millions of dollars) | | :-------------------------- | :--------------------- | :--------------------------------- | | Q1 2022 | 7.4 | $15.6 | | Q1 2021 | 9.3 | $47.3 | - As of March 31, 2022, the Company received total gross proceeds of $18.4 million under the ATM Offering Agreement since inception, out of an authorized $50 million in aggregate sales[46] Stock-Based Compensation (Note 5) This note outlines the company's stock option and restricted stock unit activity and related compensation expenses - Stock-based compensation expense was $0.1 million for both Q1 2022 and Q1 2021, recorded in general and administrative expenses[48] Stock Options Activity (Q1 2022 vs. Q1 2021) | Metric | March 31, 2022 | March 31, 2021 | | :--------------------------------- | :------------- | :------------- | | Stock options outstanding (beginning) | 277,576 | 185,054 | | Expired | — | (800) | | Stock options outstanding (end) | 277,576 | 184,254 | | Stock options exercisable (end) | 183,054 | 34,453 | | Weighted average exercise price (outstanding) | $6.18 | $7.72 | | Weighted average exercise price (exercisable) | $7.35 | $32.40 | Restricted Stock Units (RSUs) Activity (Q1 2022 vs. Q1 2021) | Metric | March 31, 2022 | March 31, 2021 | | :-------------------------- | :------------- | :------------- | | Unvested RSUs (beginning) | 385,004 | 236,403 | | Granted | 91,241 | — | | Forfeited/Expired | (122,692) | — | | Vested | (105,793) | (78,801) | | Unvested RSUs (end) | 247,760 | 157,602 | | Weighted-average grant date fair value (unvested end) | $2.87 | $2.10 | Earnings Per Share (Note 6) This note explains the calculation of basic and diluted loss per common share for the reporting period - Basic and diluted loss per common share were calculated based on weighted-average shares outstanding; 525,336 potentially dilutive shares were excluded for Q1 2022 due to the anti-dilutive effect of the net loss[54] Commitments and Contingencies (Note 7) This note discloses the company's environmental compliance, legal proceedings, and potential financial obligations - The Company believes its operations are materially compliant with current environmental regulations[55] - Settlements of legal proceedings are not expected to have a material effect on the Company's financial position, results of operations, or cash flows[56] Leases (Note 8) This note details the company's operating lease arrangements, including right-of-use assets and lease liabilities - The Company's lease portfolio includes operating leases for corporate offices, storage, and equipment with remaining terms of 0.5 to 1.3 years[57] - The Company applies the short-term lease exemption for leases with initial terms of one year or less and excludes mineral exploration/production leases from ASC 842[58][59] Operating Lease Information (Thousands of Dollars) | Metric | March 31, 2022 | March 31, 2021 | | :-------------------------------------- | :------------- | :------------- | | Operating lease cost | $38 | $38 | | Operating cash flows from operating leases | $39 | $39 | | Right-of-use assets obtained | $192 | $322 | | Operating lease right-of-use assets (end of period) | $192 | $226 (Dec 31, 2021) | | Total operating lease liabilities (end of period) | $200 | $235 (Dec 31, 2021) | | Weighted Average Remaining Lease Term (years) | 1.3 | 2.6 | | Discount Rate | 9.5% | 9.5% | Maturities of Lease Liabilities (as of March 31, 2022, in Thousands) | Year | Lease Payments | | :---------------------- | :------------- | | 2022 (remainder of year) | $119 | | 2023 | $92 | | 2024 | $0 | | Total lease payments | $211 | | Less imputed interest | $(11) | | Total | $200 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial performance, liquidity, and capital resources for the three months ended March 31, 2022, highlighting key operational developments, financial results, and future outlook Introduction This introduction provides an overview of Westwater Resources' strategic focus on battery-grade graphite materials and key project developments - Westwater Resources, Inc. is focused on developing battery-grade natural graphite materials, with Phase I of the Kellyton Graphite Plant anticipated to be completed in Q2 2023[65] - The Company is in the final stages of an exploration program at the Coosa Graphite Deposit to investigate graphite and vanadium concentrations, with a technical study expected by year-end[65] Recent Developments This section highlights recent operational and financial milestones, including plant construction, exploration, and critical materials status Kellyton Graphite Plant – Construction Update This section provides an update on the construction progress and estimated costs for Phase I of the Kellyton Graphite Plant - During Q1 2022, construction activities for the Kellyton Graphite Plant continued, including civil and earthwork, general contractor selection, and engineering/design work[66] - In April 2022, administrative offices were completed, a groundbreaking ceremony was held, and a wastewater disposal permit application was submitted[66] Kellyton Graphite Plant Phase I Costs | Metric | Amount (millions of dollars) | | :------------------------------------ | :--------------------------- | | Estimated cost to construct & commission Phase I | $202 | | Incurred costs to date | $17.8 | Coosa Graphite Deposit – Exploration Program This section details the progress of the exploration program at the Coosa Graphite Deposit and future development plans - Drilling activity for the Coosa Graphite Deposit exploration program was completed in April 2022, with a technical study expected by year-end to evaluate graphite and vanadium mineralization[67] - The Coosa Graphite Deposit and related mining operation are planned for start-up by the end of 2028, subject to feasibility study, financing, and regulatory approval[67] Graphite and Vanadium as Critical Materials This section discusses the strategic importance of graphite and vanadium as critical materials and related government initiatives - The United States is almost 100% dependent on imports for battery-grade graphite, a critical material for Lithium-ion batteries[68] - President Biden invoked the Defense Production Act on March 31, 2022, to encourage domestic production of critical materials, including graphite, for advanced batteries[70] - The U.S. Department of Energy released a Funding Opportunity Announcement (FOA) for approximately $3.1 billion to support domestic battery materials processing and manufacturing, which Westwater is evaluating[71] Equity Financings This section summarizes the company's equity capital raises through its ATM Offering Agreement Equity Capital Raises via ATM Offering Agreement | Period | Shares Sold (millions) | Net Proceeds (millions of dollars) | | :------------------------------------ | :--------------------- | :--------------------------------- | | Q1 2022 | 7.4 | $15.6 | | Subsequent to Q1 2022 (as of report date) | 4.4 | $9.0 | Results of Operations This section analyzes the company's financial performance, including net loss and key expense categories, for the reporting period Summary This summary provides an overview of the net loss and loss per share, highlighting the primary drivers of change Net Loss and EPS (Q1 2022 vs. Q1 2021) | Metric | Q1 2022 | Q1 2021 | Change | | :---------------- | :-------- | :-------- | :------- | | Net Loss | $(2.8) million | $(5.4) million | $(2.6) million decrease | | Loss Per Share | $(0.08) | $(0.19) | $(0.11) decrease | - The decrease in net loss was primarily due to decreases in product development expenses and arbitration costs, partially offset by no unrealized gain on equity securities and increases in general and administrative and exploration expenses[76] Product Development Expenses This section details the changes in product development expenses and their underlying causes Product Development Expenses (Millions of Dollars) | Period | Amount | Change (YoY) | | :-------------------------- | :----- | :----------- | | Q1 2022 | $0.2 | $(1.6) million decrease | | Q1 2021 | $1.8 | | - The decrease is primarily due to the completion of the Definitive Feasibility Study (DFS) and pilot program in 2021[77] Arbitration Costs This section explains the arbitration costs incurred during the period, primarily related to legal proceedings Arbitration Costs (Millions of Dollars) | Period | Amount | Change (YoY) | | :-------------------------- | :----- | :----------- | | Q1 2022 | $0.1 | $(1.4) million decrease | | Q1 2021 | $1.5 | | - Costs in Q1 2022 represent trailing legal and expert consulting costs associated with the arbitration against the Republic of Turkey[78] General and Administrative Expenses This section analyzes the changes in general and administrative expenses, including payroll and marketing efforts General and Administrative Expenses (Millions of Dollars) | Period | Amount | Change (YoY) | | :-------------------------- | :----- | :----------- | | Q1 2022 | $2.2 | +$0.1 million increase | | Q1 2021 | $2.1 | | - The increase is primarily due to higher payroll costs (team building) and increased sales and marketing efforts, partially offset by lower consulting and professional services[80] Exploration Expenses This section details the increase in exploration expenses, primarily due to drilling activities Exploration Expenses (Millions of Dollars) | Period | Amount | Change (YoY) | | :-------------------------- | :----- | :----------- | | Q1 2022 | $0.2 | +$0.1 million increase | | Q1 2021 | $0.1 | | - The increase is primarily due to costs associated with inclement weather and drilling for the exploration program, which was completed in April 2022[81] Financial Position This section provides an analysis of the company's cash flows from operating, investing, and financing activities Operating Activities This section details the net cash used in operating activities and the factors influencing its change Net Cash Used in Operating Activities (Millions of Dollars) | Period | Amount | Change (YoY) | | :-------------------------- | :----- | :----------- | | Q1 2022 | $(2.7) | $(2.1) million decrease | | Q1 2021 | $(4.8) | | - The decrease in cash used was primarily due to lower product development expenses and arbitration costs, partially offset by a decrease in payables and accrued liabilities[82] Investing Activities This section analyzes the net cash used in investing activities, primarily for plant construction Net Cash (Used In)/Provided By Investing Activities (Millions of Dollars) | Period | Amount | Change (YoY) | | :-------------------------- | :----- | :----------- | | Q1 2022 | $(12.1) | $(12.5) million increase | | Q1 2021 | $0.3 (provided) | | - The increase in cash used was a result of progress payments for long-lead equipment items and capital expenditures related to the Kellyton Graphite Plant construction[83] Financing Activities This section explains the net cash provided by financing activities, focusing on equity sales Net Cash Provided by Financing Activities (Millions of Dollars) | Period | Amount | Change (YoY) | | :-------------------------- | :----- | :----------- | | Q1 2022 | $15.5 | $(56.6) million decrease | | Q1 2021 | $72.1 | | - The decrease was due to reduced sales activity under the 2020 Lincoln Park PA and the ATM Offering Agreement compared to Q1 2021[84] Liquidity and Capital Resources This section discusses the company's financial liquidity, cash position, and strategies for future funding - The Company continues to rely on equity and debt financings to fund its operations and expects this to continue for the foreseeable future[85] - As of March 31, 2022, the cash balance was approximately $116.0 million, with $31.6 million remaining under the ATM Offering Agreement and 9.7 million shares available under the 2020 Lincoln Park PA[87] - Management believes current cash is sufficient for non-discretionary expenditures through 2022 and is exploring alternative project financing (e.g., project debt, government loans/grants, partnerships) for the Kellyton Graphite Plant[89][90] Off-Balance Sheet Arrangements This section confirms the absence of any off-balance sheet arrangements for the company - The Company has no off-balance sheet arrangements[91] Cautionary Note Regarding Forward-Looking Statements This section provides a disclaimer about forward-looking statements and lists factors that could affect actual results - This report contains forward-looking statements subject to risks and uncertainties, intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995[92] - Factors that could cause actual results to differ include graphite/vanadium prices, competition, customer contracts, feedstock availability, Kellyton Graphite Plant costs/schedule, government regulation, geological/processing/regulatory/legal problems, exploration results, financing ability, COVID-19 impacts, litigation, and permit acquisition[92][93][98] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Westwater Resources is not required to provide quantitative and qualitative disclosures about market risk in its Quarterly Reports - As a smaller reporting company, Westwater Resources is not required to provide quantitative and qualitative disclosures about market risk in its Quarterly Reports[96] ITEM 4. CONTROLS AND PROCEDURES This section details the company's disclosure controls and procedures, confirming their effectiveness as of March 31, 2022, and stating that there were no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section covers evaluation of disclosure controls and procedures - The Company maintains disclosure controls and procedures designed to ensure timely and accurate reporting of information required by the SEC[97] - Management, with the participation of the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2022[98] Changes in Internal Controls This section covers changes in internal controls - There were no material changes in internal control over financial reporting during the three months ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[99] PART II - OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits ITEM 1. LEGAL PROCEEDINGS This section refers to the Annual Report for information on legal proceedings and states that there have been no material changes since the last report - There have been no material changes to the legal proceedings previously disclosed in the Annual Report[100] ITEM 1A. RISK FACTORS This section directs readers to the "Risk Factors" section in the Annual Report for a comprehensive discussion of the company's risk factors - Refer to "Risk Factors" in Item 1A of the Annual Report for a discussion of the Company's risk factors[101] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - None to report[102] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section indicates that there were no defaults upon senior securities during the reporting period - None to report[103] ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the company - Not applicable[104] ITEM 5. OTHER INFORMATION This section indicates that there is no other information to report for the period - None to report[105] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including an employment agreement, certifications from the CEO and CFO, and various Inline XBRL documents - Exhibits include an Employment Agreement for John W. Lawrence, CEO and CFO certifications (pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act), and Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents, and Cover Page Interactive Data File)[106][107][113] SIGNATURES This section contains the official signatures of the company's President and CEO and Vice President - Finance and Chief Financial Officer - The report was signed on May 10, 2022, by Chad M. Potter, President and Chief Executive Officer, and Jeffrey L. Vigil, Vice President - Finance and Chief Financial Officer[113]