The following management's discussion and analysis of the consolidated financial
results and condition of Westwater for the three and six months ended
June 30, 2022, has been prepared based on information available to us as of
August 10, 2022. This discussion should be read in conjunction with the
unaudited Condensed Consolidated Financial Statements and notes thereto included
herewith and the audited Consolidated Financial Statements of Westwater for the
period ended December 31, 2021 and the related notes thereto filed with our
Annual Report, which have been prepared in accordance with U.S. GAAP. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of many
factors, including, but not limited to, those set forth elsewhere in this
report. See "Cautionary Note Regarding Forward-Looking Statements" herein.
INTRODUCTION
Westwater Resources, Inc., originally incorporated in 1977, is an almost
45-year-old company focused on developing battery-grade natural graphite
materials after its acquisition of Alabama Graphite in April 2018. Alabama
Graphite holds mineral rights to explore and potentially mine the Coosa Graphite
Deposit. During the first half of 2022, AGP continued construction activities
related to Phase I of the Kellyton Graphite Plant and in April of 2022 Alabama
Graphite completed the initial drilling stage of its exploration program to
further investigate the size and extent of both graphite and vanadium mineral
concentrations at the Coosa Graphite Deposit. The Coosa Graphite Deposit is
located near Rockford, Alabama at 32 ° 54' 30" North and 86 ° 24' 00" West.
RECENT DEVELOPMENTS
Kellyton Graphite Plant - Construction Update
During the second quarter of 2022, the Company continued construction activities
related to Phase I of its Kellyton Graphite Plant, including earthwork and site
grading, which was completed in July 2022. Construction activity during the
second quarter also included the mobilization of the general contractor, receipt
of the first components of long-lead equipment, and beginning underground
utilities, foundations, and the manufacturing of plant buildings.
In April 2022, the Company completed the buildout of its Kellyton administrative
offices, hosted a groundbreaking ceremony at the site of the Kellyton Graphite
Plant, and selected a general contractor. In June, the Company received its air
permit from the Alabama Department of Environmental Management and consequently
has all necessary permits to complete the construction of Phase I of the
Kellyton Graphite Plant. The Company also applied for its wastewater disposal
permit that is needed before commencing operations. The Company has estimated
the cost to construct and commission Phase I of the Kellyton Graphite Plant to
be approximately $202 million, of which approximately $30.0 million has been
incurred to date. Subject to global supply chain disruptions and challenges, and
its ability to raise the remaining capital necessary to complete Phase I of the
Kellyton Graphite Plant, the Company is targeting to begin commissioning of
Phase I by the end of the second quarter of 2023.
Coosa Graphite Deposit - Exploration Program
The Company began an exploration project in April 2021 to investigate the size
and extent of both graphite and vanadium mineral concentrations at the Coosa
Graphite Deposit. In April 2022, the Company completed the drilling activity
related to this exploration program and expects to complete a resource model by
the end of the year. The exploration program was conducted on approximately
4,000 acres of the approximately 41,900 acres to which Westwater holds mineral
rights. In addition, as part of the resource model, vanadium mineralization is
expected to be evaluated using extractive metallurgy techniques to ascertain the
economic potential, if any. Subject to its own definitive feasibility study, the
availability of financing, and regulatory approval, the Coosa Graphite Deposit
and related mining operation is planned for start-up by the end of 2028.
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Graphite and Vanadium as Critical Materials
Presently, the United States is almost 100% dependent on imports for
battery-grade graphite, which is currently the primary anode material in the
Lithium-ion batteries that power electric vehicles, smartphones, laptops, and
store power generated from intermittent renewable energy sources. Westwater
intends to process natural flake graphite into battery-grade graphite for all
types of batteries including Lithium-ion batteries.
On March 31, 2022, President Biden invoked the Defense Production Act to
encourage the domestic production of critical materials, including graphite, for
advanced batteries for electric vehicles and clean energy storage.
On May 2, 2022, the U.S. Department of Energy ("DOE") released Funding
Opportunity Announcement ("FOA") No. DE-FOA-0002678, entitled Bipartisan
Infrastructure Law - Battery Materials Processing and Battery Manufacturing.
The intent of this FOA is to ensure that the U.S. has a viable battery
materials processing industry, to expand capabilities in advanced battery
manufacturing, and to enhance domestic processing capacity of minerals, such as
graphite, necessary for advanced batteries. Under this FOA, the DOE expects to
provide approximately $3.1 billion to fund investments within the electric
vehicle battery supply chain and increase domestic battery manufacturing.
Westwater has engaged expert advisors to assist the Company in evaluating the
FOA to determine the benefit, if any, to the Company and its shareholders, as
well as monitor other DOE initiatives related to critical minerals. While the
FOA has been issued, there can be no guarantee that Westwater will qualify or be
able to obtain access to such funding.
Westwater has and will continue to support the efforts by the relevant United
States governmental agencies to ensure that they remain aware of the importance
of natural battery-grade graphite, its importance to the nation's security, and
how the Kellyton Graphite Plant and the Coosa Graphite Deposit fit into the
critical minerals-equation.
Equity Financings
Capital Raises during three and six months ended June 30, 2022 and 2021
During the three and six months ended June 30, 2022, the Company sold 4.4
million and 11.8 million shares of common stock for net proceeds of $9.0 million
and $24.5 million, respectfully, pursuant to the ATM Offering Agreement,
resulting in a cash balance of approximately $109.0 million at June 30, 2022.
The 4.4 million shares sold during the three months ended June 30, 2022, and the
related net cash proceeds received occurred during the first week of April 2022.
See Note 4 to the financial statements for additional information.
Changes in the Executive Team
On June 20, 2022, the Board of Directors of Westwater accepted the decision of
Jeffrey L. Vigil, currently serving as Chief Financial Officer and Vice
President - Finance for Westwater, to retire effective August 26, 2022. As part
of a thoughtful and planned succession strategy, on June 20, 2022, the Board of
Directors elected Steven M. Cates, currently serving as Chief Accounting Officer
and Controller for Westwater, as its new Chief Financial Officer and Vice
President - Finance effective August 26, 2022.
RESULTS OF OPERATIONS
Summary
Our net loss for the three months ended June 30, 2022, was $3.2 million, or
$0.07 per share, as compared with a net loss of $3.5 million, or $0.11 per share
for the same period in 2021. The $0.3 million decrease in our net loss was due
primarily to lower product development and exploration costs; offset partially
by no unrealized gain on equity securities, which were sold in the fourth
quarter of 2021 and increases in general and administrative expenses.
Our net loss for the six months ended June 30, 2022, was $6.0 million, or $0.14
per share, as compared with a net loss of $8.9 million, or $0.29 per share for
the same period in 2021. The $2.9 million decrease in our net loss was due
primarily to decreases in product development expenses, arbitration costs, and
exploration expenses; offset partially by no
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unrealized gain on equity securities, which were sold in the fourth quarter of
2021 and increases in general and administrative expenses.
Product Development Expenses
Product development expenses for the three and six months ended June 30, 2022,
were $0.4 million and $0.6 million, a decrease of $1.7 million and $3.3 million,
respectively compared to the same periods in 2021. Product development costs for
the three and six months ended June 30, 2022, primarily relate to continued
product development and product optimization costs. Product development costs in
the comparable periods of 2021 were primarily comprised of expenses for our
definitive feasibility study related to Phase I of the Kellyton Graphite Plant,
which began in February 2021 and was completed in October 2021, and our graphite
processing pilot program that was completed in 2021.
Arbitration Costs
During the three months ended June 30, 2022, the Company did not incur any
arbitration costs compared to less than $0.1 million for the same period in
2021.
During the six months ended June 30, 2022, the Company incurred $0.1 million of
arbitration costs compared to $1.5 million for the same period in 2021. The
decrease in arbitration costs during the first half 2022 was due to lower legal
fees related the Company's request for Arbitration against the Republic of
Turkey. During the first half of 2021 the Company incurred legal fees in
preparation for the hearing on substantive issues, which was conducted during
the week of September 13-17, 2021. For further reference, see Part I, Item 3 of
the Annual Report.
General and Administrative Expenses
General and administrative expenses for the three and six months ended
June 30, 2022, increased by $0.4 million and $0.6 million, respectively compared
to the same periods in 2021. The increases are due primarily to increased
personnel costs as the Company continues to build its Kellyton team.
Exploration Expenses
Exploration expenses for the three and six months ended June 30, 2022, decreased
by $0.2 million and $0.1 million compared to the same periods in 2021. The
decrease for the three and six month periods of 2022 compared to the same
periods in 2021 is due primarily to the Company completing the drilling stage of
its exploration program in April 2022.
FINANCIAL POSITION
Operating Activities
Net cash used in operating activities of $5.9 million for the six months ended
June 30, 2022, represents a decrease of $3.2 million compared to the same period
in 2021. The decrease in cash used in operating activities was due primarily to
decreases in product development expenses and arbitration costs as discussed in
Results of Operations.
Investing Activities
Net cash used in investing activities increased by $25.1 million for the six
months ended June 30, 2022, as compared to the same period in 2021. The increase
was a result of capital expenditures related to the construction of Phase I of
the Kellyton Graphite Plant, which began construction in December 2021. The
capital expenditures in the first six months of 2022 primarily related to
earthwork and site grading, which was completed in July 2022, and progress
payments related to long-lead equipment items, detailed design engineering and
project management activities.
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Financing Activities
Net cash provided by financing activities was $24.5 million for the six months
ended June 30, 2022, due to sales of common stock through the Company's ATM
Offering Agreement. Net cash provided by financing activities for the same
period in 2021 was $77.7 million. The $53.2 million decrease was due to lower
sales activity under the 2020 Lincoln Park PA and the ATM Offering Agreement
during the first six months of 2022 compared to the same period in 2021. Of the
shares sold during the first half of 2022, 4.4 million shares were sold in the
first week of April 2022 for net proceeds of $9.0 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company last recorded revenues from operations in 2009. Since 2009, the
Company has relied on equity financings, debt financings and asset sales to fund
its operations. The Company expects to rely on debt and equity financing to fund
its operations and business plan for the foreseeable future.
During the first six months of 2022, the Company continued construction
activities related to the Kellyton Graphite Plant. Subject to global supply
chain disruptions and challenges, and its ability to raise the remaining capital
necessary to complete Phase I of the Kellyton Graphite Plant, the Company is
targeting to begin commissioning of Phase I by the end of the second quarter of
2023. The Company also continued its exploration project to investigate the size
and extent of both graphite and vanadium mineral concentrations at the Coosa
Graphite Deposit. Drilling was completed in April 2022 and the Company expects
to complete resource model by the end of the year.
On June 30, 2022, the Company's cash balance was approximately $109.0 million.
During the three and six months ended June 30, 2022, the Company sold 4.4
million and 11.8 million shares of common stock for net proceeds of $9.0 million
and $24.5 million, respectfully, pursuant to the ATM Offering Agreement. As of
June 30, 2022, the Company has $22.4 million remaining available for future
sales under the ATM Offering Agreement and has 9.7 million shares of common
stock available for future sales pursuant to the 2020 Lincoln Park PA.
Management believes the Company's current cash balance is sufficient to fund its
planned non-discretionary expenditures through the third quarter of 2023. The
Company has in place the ATM Offering Agreement and the 2020 Lincoln Park PA,
which could be used to support construction of the commercial graphite
processing facility. While the Company has been successful in the past in
raising funds through equity and debt financings as well as through the sale of
non-core assets, no assurance can be given that additional financing will be
available in amounts sufficient to meet its needs, or on terms acceptable to the
Company. Stock price volatility and uncertain economic conditions caused in part
by the COVID-19 pandemic, including the emergence of variant strains of the
virus, could significantly impact the Company's ability to raise funds through
equity financing. Market conditions, including but not limited to, inflation,
labor shortages and supply chain disruptions could adversely impact the planned
cost and the construction and commissioning timeline of Phase I of the Kellyton
Graphite Plant.
Along with evaluating the continued use of the ATM Offering Agreement and the
2020 Lincoln Park PA, the Company is considering other forms of project
financing to fund the construction of the Kellyton Graphite Plant, including
both Phase I and Phase II. The alternative sources of project financing could
include, but are not limited to, project debt, convertible debt, government
loans or grants, or pursuing a partnership or joint venture. In the event funds
are not available under the Company's financing facilities or alternative
financing to fund the construction of Phase I of the Kellyton Graphite Plant,
the Company expects to be able to fund its non-discretionary expenditures,
however, the Company may be required to change its planned business development
strategies.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
With the exception of historical matters, the matters discussed in this report
are forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from projections or estimates
contained
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herein. We intend such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
include, without limitation, statements regarding the adequacy of funding,
liquidity, access to capital, financing activities, the timing or occurrence of
any future drilling or production from the Company's properties, potential
effects of the continued COVID-19 pandemic, the strategic goals of the business,
arbitration matters, costs of Phase I of the Kellyton Graphite Plant and
estimated completion date, expected feasibility study and start date of the
Coosa Graphite Deposit, and the Company's anticipated cash burn rate and capital
requirements. Words such as "may," "could," "should," "would," "believe,"
"estimate," "expect," "anticipate," "plan," "forecast," "potential," "intend,"
"continue," "project" , "target" and variations of these words, comparable words
and similar expressions generally indicate forward-looking statements. You are
cautioned not to place undue reliance on forward-looking statements. Actual
results may differ materially from those expressed or implied by these
forward-looking statements. Factors that could cause actual results to differ
materially from these forward-looking statements include, among others:
the spot price and long-term contract price of graphite (both flake graphite
? feedstock and purified graphite products) and vanadium, and the world-wide
supply and demand of graphite and vanadium;
? the effects, extent and timing of the entry of additional competition in the
markets in which we operate;
? the ability to obtain contracts with customers;
? available sources and transportation of graphite feedstock;
? the ability to control costs and avoid cost and schedule overruns during the
development, construction and operation of the Kellyton Graphite Plant;
the ability to construct and operate the Kellyton Graphite Plant in accordance
? with the requirements of permits and licenses and the requirements of tax
credits and other incentives;
? effects of inflation;
? the availability and supply of equipment and materials needed to construct the
Kellyton Graphite Plant;
? stock price volatility;
? government regulation of the mining and processing industries in the United
States;
? unanticipated geological, processing, regulatory and legal or other problems we
may encounter;
the results of our exploration activities, and the possibility that future
? exploration results may be materially less promising than initial exploration
results;
? any graphite or vanadium discoveries not being in high enough concentration to
make it economic to extract the metals;
? our ability to finance growth plans;
? the potential effects of the continued COVID-19 pandemic;
? currently pending or new litigation or arbitration; and
? our ability to maintain and timely receive mining and other permits from
regulatory agencies.
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In addition, other factors are described in our Annual Report, and the other
reports we file with the SEC. Most of these factors are beyond our ability to
predict or control. Future events and actual results could differ materially
from those set forth herein, contemplated by or underlying the forward-looking
statements. Forward-looking statements speak only as of the date on which they
are made. We disclaim any obligation to update any forward-looking statements
made herein, except as required by law.
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WESTWATER RESOURCES, INC. 
