Energy Minerals Developer Accelerates Cash Flows

There is a jingle of coin falling into the coffers of Westwater Resources (WWR:  Nasdaq), a developer of energy minerals, including uranium, lithium, graphite and vanadium.  The company is selling non-core assets to another uranium developer, Uranium Royalty Corporation (URC). The package of assets includes 1) royalty streams expected from mineral properties in South Dakota, Wyoming and New Mexico and 2) a promissory note secured by uranium properties in New Mexico.  Altogether Westwater will be getting $2.75 million in cash  -  $500,000 up front and the balance at closing.

Coosa County, Alabama
 Graphite Project

The extra cash will come in handy for the capital hungry company that has made development of battery-grade graphite a top priority.  Plans for a pilot plant to produce Purified Micronized Graphite (PMG) for the battery market are well underway and appear to be on schedule for completion by the end of 2019.   Initial production of PMG is planned in 2020, with volume production to follow in 2021 to deliver the company’s first revenue in several years. Initial production will be accomplished using outsourced graphite materials.  At least two potential customers are testing PMG materials in their battery products and another two dozen possible customers have signed non-disclosure agreements to receive samples of Westwater’s battery-grade graphite materials. Accomplishment of these goals is highly dependent upon raising adequate capital.

Coasted Spherical Purified Graphite

Westwater reported $1.6 million in cash assets at the end of December 2018.  After that the company received interest and principal payments for the account receivable, including $795,000 in cash and 2.5 million shares of tradable common stock.  We estimate that at the recent pace of cash usage to support operating activities, the company had about $1.0 million in cash at its disposal at the end of February 2018.  That is a thin purse for an operation that needs about $800,000 a month to keep operations humming along.

Westwater has at its disposal $23.9 million unused capacity in ‘at-the-market’ equity sales agreement through a leading investment bank.  Management calls it an ATM, but it is not quite as simple as the automated bank teller most people think of at the sound of that acronym.  Common stock sales may not be timely if the selling company’s stock is low. With Westwater stock priced near the 52-week low, shareholders are concerned about making a trip to the Company’s ATM.

Sitting between the rock of low valuation and a hard place with dwindling cash resources, it makes sense to accelerate cash flows from other sources like royalty-bearing assets and notes receivable in order to keep the wheels of progress turning toward commercializing battery-grade graphite.  As it was, with a market capitalization at about half of book value of tangible assets, it appeared Westwater shareholders had accorded very little if any value to these assets. 

News of the asset sale to URC gave a one-penny boost to Westwater’s share price in the first trading day following the announcement.  One penny does not sound like much.  However, at a pre-announcement closing price of $0.14 per share, that single penny gave WRR shares a 7.1% increase.  Traders may have been impressed by management’s clever monetization of assets which investors had previously overlooked.  There may also have been a bit of euphoria that Westwater is now supported for another three months in its quest to bring domestic produced graphite materials to the U.S. battery market.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has a Speculative Buy recommendation on Westwater Resources, which is included in the CER Report series sponsored by issuers and their agents.