Westwater Resources Prepares Capital Raise

There has been progress in the various markets Westwater Resources (WWR:  Nasdaq) addresses with its energy mineral asset portfolio.  After a challenging year 2018 when the Company suffered confiscation of its Turkey uranium mining license, recent developments appear more favorable.  The respite in ill fortune is smoothing the way to a capital raise.  In late April 2019, the company filed a registration statement with the SEC for sell common stock and warrants. 

Following are several key disclosures and noteworthy commentary in the registration statement:

·        Growth strategy more clearly focused that ever on development of battery-grade graphite materials from its graphite project in Coosa County, Alabama.  However, geologic evaluation of lithium exploration projects in Nevada and Utah receives new emphasis in ‘management’s analysis and discussion,’ demonstrating that lithium development is also a high priority.

·        Management remains committed to building a pilot-scale processing plant for battery-grade graphite material yet in 2019, and beginning operations to produce low volumes in 2020.  A commercial-scale plant would be built beginning in 2020 with operations beginning in 2022.

·       The Company plans to conduct a pilot plant study yet in 2019, to verify the use of a fluidized-bed electro-thermal furnace for purification of graphite concentrate mined from the Coosa County project as well as purchased natural flake graphite.  The pilot plant study results could be used in designing a full-scale furnace planned for construction beginning in 2020.

·        The Coosa graphite project and lithium exploration projects are specifically cited for use of proceeds of the common stock offering.

·        Westwater had raised approximately $2.2 million in cash in the first four months of 2019, through 1) collection on a promissory note from Laramide Resources, 2) sales of common stock through the Cantor Fitzgerald equity agreement, and 3) sale of certain assets to Uranium Royalty Corporation.  At the end of March 2019, Westwater had $1.0 million in cash on the balance sheet compared to $1.6 million three months earlier.  Approximately $2.25 million remains due from Uranium Royalty pending completion of due diligence on the various assets Uranium Royalty is buying from Westwater.

As Westwater management engages potential investors there will be plenty to discuss regarding the four energy minerals assets the company has under development:  uranium, lithium, graphite, and vanadium.

·        Uranium  -  The roll-off of a large number of long-term supply contracts with major U.S. utility companies has been intensely anticipated by producers around the world.  We believe the complaint of unfair imports made recently to the U.S. Department of Commerce investigation may have delayed contract negotiations as the utility industry has waited for clarity on quotas and tariffs.  The matter is now before the Office of the President.  Whatever the final word on tariffs or quotas, the decision should give utilities a better foundation for locking in supply agreements.

·        Lithium  -  Westwater was recently granted water rights by the State of Utah for the company’s Sal Rica lithium project in western Utah.  In our view, this is a value-creating accomplishment.  Access to water is vital for conventional lithium brine operations.  The water rights make it possible for the Company to move forward with plans to extract lithium from the Sal Rica property or sell the mining asset along with the water rights to another party.

·        Graphite  -  An independent party has put Westwater’s battery-grade graphite materials to the test.  The company’s Coated Spherical Purified Graphite (CSPG) made from graphite from the Coosa County graphite project was subjected to long-term cycling tests.  The test showed that improvement has been made in the irreversible capacity loss compared to tests completed three years ago.  Irreversible capacity loss in graphite anodes of lithium-ion batteries occurs as the battery is charged and discharged, causing the operating voltage of the graphite anode to be below the reduction voltage of the electrolyte.  Eliminating such capacity loss is crucial for efficient battery operation and reduction in cost for lithium ion applications such as electric vehicles.

·        Vanadium  -  In early April 2019, the Company announced that sampling activity in the Company’s Coosa County, Alabama asset has yielded five new vanadium and graphite target areas.  An exploration plan is underway to further quantify exploitable vanadium resources at the Coosa project.  A technical report detailing the exploration plan is expected by the end of May 2019. 

The SEC filing followed by one day the reverse split of Westwater’s common stock by 1-for-50 shares that left 1.5 million shares outstanding.  While the action cut deeply into the number of shares in flotation, it was necessary to regain compliance with Nasdaq listing requirements. 

The reverse split may have left both insiders and shareholders feeling backed into a corner.  Perhaps the offering will be a chance to get some breathing room.  We note there is no minimum offering amount.  We expect this nuance to give Westwater management complete latitude in the capital raise.  Depending upon how favorable market price, management may be able to limit dilution or maximize the capital raise.

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 publishes research on WWR through the CER Reports series and has a Speculative Buy rating on WWR shares.  The most recent report is dated May 6, 2019 and is available at www.CrystalEquityResearch.com/Reports/