Westwater Resources(WWR) - 2018 Q4 - Annual Report

Part I Item 1. Business Westwater Resources transitioned to a diversified energy materials developer, focusing on battery-grade graphite, lithium, and uranium, marked by a key acquisition and arbitration against Turkey - The company has shifted its focus to become a diversified energy materials developer, with assets in uranium, lithium exploration, and battery-graphite materials following the acquisition of Alabama Graphite Corp. in April 2018[24] - WWR's primary strategy is to expand into the battery materials market while holding its uranium assets as an option for when prices recover, with plans for a pilot-scale graphite processing plant in 2019 and a commercial facility in 2020[27][28] - In December 2018, Westwater filed a Request for Arbitration against the Republic of Turkey for the illegal taking of its Temrezli and Şefaatli uranium projects in June 2018[34][37] - The company discovered significant vanadium concentrations at its Coosa Graphite Project in late 2018, with assay results showing values up to 0.4% V2O5[41][42] Overview of Westwater Resources' Projects The company's diversified project portfolio includes near-term graphite development, mid-term lithium exploration, and long-term uranium assets - Coosa Graphite Project (Alabama): Acquired in 2018, this is the company's primary focus, with plans to build a pilot plant in 2019 and a commercial processing facility in 2020, and the Coosa mine planned for a 2026 start-up[72][73] - Lithium Projects (Nevada & Utah): The company holds three exploration-stage lithium brine projects: Columbus Basin (14,200 acres in NV), Railroad Valley (9,270 acres in NV), and Sal Rica (13,260 acres in UT)[86][87][88][89] - Uranium Projects (Texas & New Mexico): WWR has two licensed processing facilities (Kingsville Dome and Rosita) in Texas on standby, and controls approximately 188,700 acres of mineral rights in New Mexico's Grants Mineral Belt[92][93] Environmental Considerations and Permitting Company operations are subject to extensive environmental regulations, requiring various permits and licenses for uranium, graphite, and lithium, along with financial surety for reclamation - Uranium extraction requires a radioactive material license, with jurisdiction handled by the Texas Commission of Environmental Quality (TCEQ) in Texas and the Nuclear Regulatory Commission (NRC) in New Mexico[99] - Graphite mining in Alabama is regulated by the Alabama Department of Labor under the Alabama Surface Mining Act of 1969, requiring a permit and reclamation bond[108] - The company is required by Texas regulators to obtain financial surety for future restoration and reclamation obligations, with performance bonds totaling $9.1 million[114] - As of December 31, 2018, the estimated restoration and reclamation liabilities for prior operations at the Kingsville Dome, Vasquez, and Rosita sites are about $7.9 million, with a carrying value of $6.2 million on the balance sheet[117] Item 1A. Risk Factors The company faces significant risks including substantial doubt about its going concern ability, reliance on financing, commodity price volatility, and potential Nasdaq delisting - There is substantial doubt about the company's ability to continue as a going concern, having incurred significant losses since 2009 and ending 2018 with approximately $1.0 million in net working capital and $1.6 million in cash[127][128] - The company currently has no sources of operating cash flow as it is not producing any minerals, with its viability dependent on monetizing assets, partnering, or raising capital[129] - The company faces risks related to its new battery-graphite manufacturing business, including competition, the need for additional capital, and a lack of prior experience in graphite production[136][138] - The company is at risk of being delisted from The Nasdaq Capital Market for failing to maintain the $1.00 per share minimum bid price requirement[181] Item 2. Properties Westwater Resources holds a diverse portfolio of mineral properties across the US, including graphite, lithium, and legacy uranium assets Property Portfolio Overview | Project Type | Project Name(s) | Location | Acreage (approx.) | | :--- | :--- | :--- | :--- | | Graphite | Coosa Project | Alabama | 41,965 | | Lithium | Columbus Basin | Nevada | 14,200 | | | Railroad Valley | Nevada | 9,270 | | | Sal Rica | Utah | 13,260 | | Uranium | Kingsville, Rosita, Vasquez, Butler Ranch | Texas | ~11,000 | | | Cebolleta, Juan Tafoya, Other | New Mexico | ~188,700 | Graphite Project The Coosa Graphite Project in Alabama, covering 41,965 acres, focuses on building a pilot production facility for advanced battery materials - The Coosa Project comprises a lease of approximately 41,965 acres of privately-owned mineral rights in Coosa County, Alabama[189] - The company has begun engineering work for a pilot plant facility to upgrade and purify graphite material into products like purified micronized graphite and delaminated expanded graphite for customer qualification[196] Lithium Properties The company controls three exploration-stage lithium brine projects in Nevada and Utah, with initial drilling and sampling indicating anomalous lithium - At the Columbus Basin Project, a 2017 Phase I drilling program completed three core holes, identifying fluids with high total dissolved solids and lithium concentrations up to 43 ppm[206][208] - The Sal Rica Project has historical drilling data from the 1960s and recent sampling confirming anomalous lithium values ranging from 22 to 81 ppm in shallow brines[220] Uranium Properties WWR's uranium assets in Texas are former producing sites in standby or reclamation, while New Mexico properties hold undeveloped resources under long-term leases - Groundwater restoration is complete at the Kingsville Dome project, and the site is in a stabilization period, with the UIC permit renewal application withdrawn in 2016 to be resubmitted later[240][241][242] - At the Vasquez project, wellfield plugging and abandonment was completed in July 2018 and approved by the TCEQ in December 2018, with the site undergoing complete closure[257] - The Cebolleta and Juan Tafoya projects in New Mexico are held under leases requiring significant annual advance royalty payments, which were renegotiated in 2017 to reduce payments for a three-year period[275][289] Item 3. Legal Proceedings In 2018, Westwater resolved a dispute with Kleberg County, settled a severance claim, and initiated arbitration against Turkey for expropriated uranium licenses - A long-standing legal dispute with Kleberg County, Texas, regarding groundwater restoration standards was resolved in the company's favor by the Texas Supreme Court in March 2018[309][313] - A lawsuit with former Alabama Graphite Corp. CFO Douglas Bolton regarding severance was settled in January 2019 for CAD$40,000[315][316] - 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) due to the cancellation of its uranium exploration and operating licenses[317] Part II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations For 2018, Westwater reported a consolidated net loss of $35.7 million, primarily due to a $23.7 million impairment charge on uranium properties, with management expressing substantial doubt about going concern Consolidated Net Loss Summary (in thousands) | Item | 2018 | 2017 | | :--- | :--- | :--- | | Mineral property expenses | $(3,538) | $(4,584) | | General and administrative | $(7,357) | $(6,614) | | Impairment of uranium properties | $(23,712) | $(11,436) | | Net Loss | $(35,684) | $(19,288) | - The company recorded a total impairment charge of $23.7 million in 2018, primarily consisting of an $18.0 million write-down of its Turkish uranium assets and a $5.7 million impairment of uranium plant and equipment in South Texas[359][362][363] - The company's financial statements were prepared on a "going concern" basis, but management notes that recurring losses and reliance on financing raise substantial doubt about its ability to continue operations without raising additional capital[373][380] - As of December 31, 2018, the company had $1.6 million in cash and a working capital balance of $1.0 million, planning to fund future operations through its ATM offering, note receivable payments, and other potential financings[376][378] Item 8. Financial Statements and Supplementary Data This section presents audited financial statements for 2018 and 2017, with the auditor expressing substantial doubt about going concern, showing a $35.7 million net loss and decreased assets - The report from the independent registered public accounting firm, Moss Adams LLP, includes a paragraph highlighting a going concern uncertainty due to the company's lack of revenue, recurring losses, and reliance on financing[390] Key Balance Sheet Data (in thousands) | Account | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,577 | $4,054 | | Total Current Assets | $4,180 | $7,833 | | Net property, plant and equipment | $20,553 | $35,409 | | Total Assets | $29,958 | $50,238 | | Total Current Liabilities | $3,172 | $3,968 | | Total Liabilities | $9,167 | $9,121 | | Total Stockholders' Equity | $20,791 | $41,117 | Key Statement of Operations Data (in thousands) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Total operating expenses | $(36,049) | $(24,818) | | Net Loss | $(35,684) | $(19,288) | | Basic and Diluted Loss Per Share | $(0.77) | $(0.78) | - The company operates in three reportable segments: uranium, lithium, and graphite; for 2018, the uranium segment reported a loss of $29.6 million (including impairments), while lithium and graphite segments reported losses of $0.5 million and $0.7 million, respectively[532][537] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with no material changes reported - Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2018[540] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2018, based on the framework in Internal Control—Integrated Framework (1992) issued by COSO[543] Part III Item 10. Directors, Executive Officers and Corporate Governance This section incorporates information by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders - Information required for this item is incorporated by reference from the company's definitive proxy statement for the 2019 Annual Meeting of Stockholders[549] Item 11. Executive Compensation This section incorporates information by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders - Information required for this item is incorporated by reference from the company's definitive proxy statement for the 2019 Annual Meeting of Stockholders[550] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section incorporates information by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders - Information required for this item is incorporated by reference from the company's definitive proxy statement for the 2019 Annual Meeting of Stockholders[551] Item 13. Certain Relationships and Related Transactions, and Director Independence This section incorporates information by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders - Information required for this item is incorporated by reference from the company's definitive proxy statement for the 2019 Annual Meeting of Stockholders[552] Item 14. Principal Accounting Fees and Services This section incorporates information by reference from the company's definitive proxy statement for its 2019 Annual Meeting of Stockholders - Information required for this item is incorporated by reference from the company's definitive proxy statement for the 2019 Annual Meeting of Stockholders[553] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including governance documents, material contracts, and required certifications - This item provides a list of all financial statements, schedules, and exhibits filed with the annual report, including certifications by the CEO and CFO[556][557]