Graphite Prospects

Shareholders have plenty to celebrate as Westwater Resources (WWR:  NYSE-AMEX) announced a letter of intent with a manufacturer of consumer batteries to supply Westwater’s Purified Micronized Graphite (PMG).  The intention is apparently to begin shipping PMG to the customer  in 2023, following the construction and commissioning of Westwater’s Kellyton, Alabama Graphite Processing Plant.  The unnamed battery producer has committed to additional testing and qualification of PMG samples produced using the Westwater’s pilot plant capacity.

The announcement brings to three the number of customer prospects that have advanced to final steps in Westwater’s business pipeline, including final qualification testing, indications of interest in specified volumes and commitments to mutual development activities.  Despite the lack of details regarding the potential customer, the announcement provides strong evidence of the commercial potential in Westwater’s graphite materials.  We believe the company has established itself as a leader in the graphite sector in terms of its business development efforts.

·        August 19, 2019  -  announcement that major battery manufacturer requested a bulk sample of one metric ton of ULTRA-PMG product for further testing; update in June 2020, one metric ton sample shipped and customer qualification underway, possibly for alkaline battery designs.

·        November 17, 2021  -  letter of intent to sell 125 to 250 metric tons of Coated Spherical Purified Graphite (CSPG) to a developer of lithium-ion batteries beginning in 2023; with an option on an additional 16,000 metric tons for delivery in 2025.

·        August 15, 2022  -  letter of intent with an unnamed battery manufacturer for unspecified volumes of PMG to be delivered beginning in 2023, from Westwater’s commercial-grade graphite processing in Kellyton, AL; negotiations for definitive agreements expected in coming months.

Westwater management has been reticent to provide details on any of these potential customers, citing strict non-disclosure agreements.  Both parties have good reason to keep details under wraps.  Customers do not want to cue competitors with information about future products or the product composition.  Nor do manufacturers want to give up the name of a good supplier who might also do business with those competitors.  Westwater certainly has strong competitive reasons to keep details about possible customers to themselves, as the revelation of even the slightest detail could trigger the sales efforts of rivals for the same prospect.

The line up of prospective customers could dissipate quickly if Westwater does not get its Kellyton, Alabama processing facility constructed on time.  The company has made meaningful progress.  The project is on schedule to be completed in mid-2023 and move to commissioning first production later in the year.  During the recent second quarter earnings conference call, management reported completion of site preparation, including excavation and dirt works for flood protection, drainage and building foundations.  The Company reported the movement of a total of 97,000 cubic yards of topsoil in the effort.  Installation of utilities such as water, electricity and sewer have been initiated for the buildings that will be constructed over the next few months.

Looking at the WWR price, Westwater does not appear to get credit for its accomplishments.  A group of sixteen selected graphite exploration and development companies trade at an average 5.69 times book value.  This compares to 0.49 for Westwater. 

Part of the difficulty could be the company’s finances.  The Kellyton graphite facility had an original $202 million price tag with an estimated $170 million to spend on the partially completed project.  At the end of June 2022, the company had $109.0 million on its balance sheet.  Westwater management does still have access to two equity sales agreements that could make up the different.  However, the low stock price probably is giving investors the jitters over potential dilution.  Management has promised they are diligently looking at all financing options.  

 

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 covers WWR under the CER Reports research series for issuer sponsored research with a has a Speculative Buy rating.