Friday, February 28, 2020

Westwater Resources: Eye on the Prize in Battery Materials

If there was any doubt before, the outbreak of the particularly virulent coronavirus in China beginning in late 2019, laid bare the truth of global materials supplies.  All commodity supply chains seem to wind through China at some point on the way to market.  When the Red Dragon is off her feed, everybody seems to be unwell.

The broad U.S. market has been fretting over the pace of economic activity as China and other countries attempt to contain spread of the virus.  However, energy materials developer Westwater Resources (WWR:  Nasdaq) has been unfazed by the prospect of quarantines or work stoppages.   They are not in production yet anyway. 
Westwater is in a race to bring battery-grade graphite to market.  The company’s first three proprietary graphite products include Purified Micronized Graphite (PMG), Delaminated Expanded Purified Graphite (DEXPG) and Coated Spheronized Purified Graphite (CSPG). 
Image result for cspg image graphite
PMG has taken on greater priority for Westwater in the last couple of years as battery manufacturers have turned to specialized graphite materials for performance enhancement of conventional batteries.  The company apparently remains on schedule to deliver one ton of its PMG product to an unnamed battery manufacturer with a product line that includes lead acid and alkaline batteries.  The large volume of PMG will be used in a follow-on round of qualification testing.  During an earnings conference call in mid-February 2020, management  expressed confidence in the ability to produce the one ton of PMG at its planned graphite materials pilot plant.
To produce its battery materials in the near-term the company is sourcing graphite raw materials from the open market, but in the long-term will mine graphite concentrate from its own mine in Coosa Country, Alabama.  Graphite has not been mined in Alabama for decades and Westwater’s return to the state will represent a seminal event for the U.S. commodity market.
Westwater recently engaged a German engineering firm, Dorfner Anzaplan, to take what has been a laboratory exercise to commercial scale production of the three graphite products.  The Dorfner engineers are expected to perfect the methods and operating requirements for purifying natural flake graphite and then design a pilot plant.   
The pilot plant is scheduled for completion yet in 2020, contingent upon the availability of project financing.  The plan so far is to use standard equipment and proven processes in the pilot plant, which should foster some confidence with lenders and investors considering financing the plant.  Dorfner is expected to complete its current engineering and design work sometime near the end of the quarter ending June 2020.
China figures prominently in the battery-grade graphite supply chain.  Operations at China processors of flake and spherical graphite had resumed by the third week in February 2020, but with partial workforce.  Producers near port cities are more likely to begin making export shipments as they have access to seaborne delivery options.  Market prices have remained steady on reportedly limited trading.  There had been suggestions that prices of higher mesh graphite could increase.  However, even by the end of February 2020, price quotations had yet to reflect this development.
Graphite price fluctuation may occur in the near-term, but that is not likely to have any impact on Westwater’s long-term plans for its graphite market entrance.  The adoption of electric vehicles, most of which are powered by lithium ion batteries, is driving demand for graphite.  Despite the name, conventional designs of lithium ion batteries use more graphite than any other material.  Demand for natural flake graphite from lithium ion battery manufacturers is expected to increase at about 20% annually through 2028.  
Consequently, Westwater management is keeping their collective eye on the prize of a large and growing market for battery grade graphite.   

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.


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Alan Curtis said...
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