Battery Graphite Developer Goes To Market

Energy minerals developer Westwater Resources (WWR:  Nasdaq) is heading to market with its battery-grade graphite materials.  In recent weeks Westwater management has making the rounds at battery industry conferences, mostly promoting the Company’s battery-grade graphite materials.  The company may gain visibility among battery manufacturers.  The Company’s new graphite business plan published in October 2019 reveals building sophistication and confidence on the Westwater team.  Most likely their self-confidence is also becoming apparent to potential customers.

Unfortunately, it may also alert competitors who are also vying for first-mover status in the domestic graphite market.  Expect Westwater to become a more visible target in what has historically been a rough and tumble contest among graphite resource developers. 

Westwater may be in a better position to meet competitive threats than in recent months.  The company raised $1.4 million in new capital through the sale of common stock during the third quarter 2019, bringing total equity capital raised so far in 2019 to $2.6 million.  The count of shares outstanding rose to 2.9 million by November 6, 2019.  Westwater is relying on two separate arrangements that allow the company to put shares of common stock to third parties.  Including sales of additional shares following the close of the quarter, the stock purchase agreement with Lincoln Park Capital has $5.2 million in remaining capacity and an equity offering sales agreement with Cantor Fitzgerald & Co. has $23.8 million remaining sales capacity.  

The new capital is supporting efforts to commercialize the company’s battery-grade graphite materials, in particular Purified Micronized Graphite (PMG).  An order for one metric ton of PMG for high-volume testing has been received from an undisclosed battery manufacturer.  The potential customer had previously run tests on small quantities.

Westwater is also preparing for production.  Its graphite materials business plan published in October 2019, calls for an investment of $1.1 million in a graphite processing pilot plant.  In the next year 2020, the company plans additional work on the pilot plant and the construction of a processing facility at the Coosa County project in Alabama.  An additional, $16.6 million will be needed in 2021 for final work on the processing facility.  The three year capital spending budget could support full commercial output of Purified Micronized Graphite (PMG), Delaminated Expanded Graphite (DEXDG) and Coated Spherical Purified Graphite (CSPG) materials.  Pilot plant start-up is planned for 2020 with full scale production achieved by 2022 using outsourced graphite concentrate.

Recently, Management confirmed satisfactory receipt of the first shipment of outsourced graphite concentrate under a long-term supply agreement.  The company plans to fulfill near-term requests for test samples of graphite materials as well as initial orders for its various battery grade graphite materials products using this outsourced graphite.  Extraction of natural flake graphite from the company’s graphite asset in Alabama has been pushed out to 2026.  The step-wise approach to graphite production is aimed at accelerating penetration of the battery-grade graphite materials market and conserving capital through a low-capital cost alternative to a conventional plan that would requires a capital intensive mining operation as a first step.

Just two weeks ago Westwater Resources reported its financial position at the end of September 2019.  Emphasis on conserving cash was evident in the quarter report of operating expenses.  During the three months ending September 2019, the company reported total operating costs of $2.6 million compared to $2.9 million in the same period a year ago.  Importantly, the company reported using $2.9 million in cash resources to support operations in the third quarter ending September 2019, bringing total cash usage to $7.2 million for the first nine months of 2019.  This compares to total cash usage of $9.0 million at the same point in time in the previous fiscal year 2018.  The reduction in cash expenditures reflects plans to concentration on graphite materials development and market penetration over the company’s lithium minerals projects. 

Cash usage left Westwater with $716,000 in cash and cash equivalents on its balance sheet at the end of September 2019.  This compares to $1.6 million in cash at the end of 2018, and $1.2 million at the end of June 2019.  Working capital remains at a deeply negative deficit of $2.6 million.  The reality of the company’s working capital position could be much easier to tolerate as investors watch management head off to market with high-quality battery-graphite materials.

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.