Graphite Capital Raise

Westwater Resources is closer to bringing proprietary graphite materials to the battery manufacturing market.  Issued with financial results for the third quarter 2020, the company’s new timetable calls for materials production through a pilot process yet in 2020 and continuing in early 2021.  Results from the pilot process will provide data for the feasibility study and construction of the commercial scale plant in 2022.  The Company will rely on third-party suppliers of suitable graphite concentrate until it is ready to mine graphite from the company’s natural flake graphite property in Coosa County, Alabama.

The team at Westwater has been working doggedly on the goal to make it the first producer of battery graphite materials from a domestic graphite source.  Access to battery materials from a domestic supplier could make all the difference for battery producers.  A domestic supply chain is shorter, faster and in some case potentially more reliable.  Producers of all things electronic, especially electric vehicles, will also get bragging rights to ‘greener’ battery content.   Much of battery graphite is sourced from China producers that use highly toxic chemicals to make synthetic graphite from petroleum coke and then even more toxic chemicals to refine the graphite for use in batteries.

Management have been keeping the wheels of progress turning with limited capital.  However, following recent sales of common stock, the company is now well fortified with a cash kitty of $53 million to complete a final feasibility study and seek project financing for the commercial scale graphite processing plant that will be located in Alabama near the proposed mine site.

During the quarter ending September 2020, management had raised $7.2 million in cash from the sale of 3.8 million shares of common stock.  However, it was the capital raise of another $50.2 million subsequent to the quarter end that triggered investor excitement during the earnings conference call in mid-November.  Both were accomplished through equity purchase agreements that had been previously put into place with two separate financial institutions.

In October 2020 during a period of record price strength, the company sold 8.5 million shares at an average $5.91 per share.  Indeed, during the conference call to discuss third quarter results management’s opening remarks were focused for some minutes on how the company was able to take advantage of recent upward price moves triggered by battery industry events and favorable news in energy materials markets.  The discussion was all the more remarkable given that Westwater management rarely comments on the stock price.

Importantly, the capital raise helps deliver on a promise made by management a year ago in forging a new common stock placement agreement with Lincoln Park Capital, a private equity fund.  At the time management had touted the agreement as giving them latitude to quickly take advantage of favorable stock prices and thereby minimize stock dilution for existing shareholders.

Management claims the company’s strategic plan is funded well into 2022.  The cash balance at the beginning of November 2020, was approximately $53 million, an amount sufficient to support a mix of strategic budget items: 1) graphite pilot process program, 2) completion of a final feasibility study for the Alabama graphite project, 3) completion of additional vanadium exploration tests at the Coosa County, Alabama resource, and 4) working capital through the first part of 2022.   

Of course, completion of a commercial scale graphite processing plant in Alabama will require additional financing.  A consultant has already been engaged to help management sort through financing alternatives for a commercial scale plant that could be completed before the end of 2022.  Apparently, management is eager to consider any alternative from debt, to equity, to strategic partnerships.

In the meantime the pilot process results will be momentous.  A potential customer in the battery manufacturing industry is waiting in the wings for one ton of Westwater’s proprietary Purified Micronized Graphite (PMG) to use in high-volume validation tests to improve performance of alkaline batteries.  The pilot process operations will provide valuable data on the efficiency of the process design as well as the performance of the finished materials.  Performance testing will be carried out in Germany by the engineering firm Dorfner Anzaplan.  Westwater is also using a specialized furnace in Buffalo, New York for additional high temperature testing. 

Investors can look forward to plenty of news from Westwater Resources in the coming months.  Expect news in the next few months of the pilot process completion, delivery of the PMG validation materials as well as completion of the final feasibility study.  The initial pilot exercise is expected to be completed by the first quarter 2021, with data then supplied to contracted engineers for a final feasibility study that is due out mid-2021.   

 

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 rating on Westwater Resources (WWR) and publishes research on the company under its CER Report series for issuer sponsored research.