Westwater Resources' (WWR) CEO Christopher Jones on Q4 2017 Results - Earnings Call Transcript
Westwater Resources, Inc. (NASDAQ:WWR) Q4 2017 Earnings Conference Call March 2, 2018 1:00 PM ET
Christopher Jones - President and Chief Executive Officer
Jeff Vigil - Chief Financial Officer and VP, Finance
Dain McCoig - Vice President, Operations
Debra Fiakas - Crystal Equity Research
Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources Inc. Full Year 2017 Results and Business Update Conference Call. As a reminder, all participants are in listen-only-mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]
I would now like to turn the conference over to Christopher Jones, President and CEO. Please go ahead.
Thanks, Arryal and welcome once again to Westwater Resources’ full year results call. With me here in our Centennial Headquarters is Jeff Vigil our CFO and Vice President of Finance and with us by phone is Dain McCoig, our Vice President of South Texas Operations.
I would like to remind our listeners to read our cautionary statements on the following pages, as we will be discussing some forward-looking statements and information.
And with that, I invite you to turn to Slide 4. 2017 was an important and pivotal year for Westwater. We changed our name in August. We successfully executed a binding agreement to acquire Alabama Graphite Corporation something a deal we expect to close in the second quarter of this year, but much more on that later.
We monetized our Churchrock assets with the sale to Laramide Resources of Canada. We acquired our Railroad Valley lithium exploration property. We acquired water rights for our Columbus Basin exploration projects. We announced positive lithium results associated with our Sal Rica Project. We secured a $22 million financing facility with Aspire Capital of Chicago. We continued successful cost reductions in our base business. Our reclamation success in Texas has resulted in bond release totaling over $300,000 thus far.
And our cash balance at the year-end was $4 million and most notably, we also achieved one year with zero reportable incidents in both safe work performance and environmental compliance, our best record in five years and one that continues through this moment.My heartfelt thanks to a hard working and high-quality teams that made all this happen here at Westwater.
With that, I would like to turn it over to Jeff Vigil for a corporate update.
Thank you, Chris. Good day everyone. First, let’s take a look at our capital structure on Slide 5, which got the recent share price of $0.76 and was approximately 27.9 million shares outstanding. Our market capitalization stands at $21.2 million.
During 2017, our stock performance tracked the uranium equity sector which saw a decline in performance due to the lag in price in uranium. Uranium equities tend to follow chemical coop share price trends. In October 2017, an analyst issued a barrage report on chemicals outlook and a negative outlook on the uranium market in general, which negatively impacted all uranium equities.
From a price of $1.44 at September 29, 2017, WWR’s prices dropped to its current price in the sub $1 area. While the uranium sector remains important to Westwater, we believe that our strategic expansion into the battery material supply chain sector in both with lithium and graphite could be a catalyst for a better share price performance.
Turning to the financial summary on Slide 6 for our 2017 results, we want to highlight the improved financial strength of URI at cash and liquid assets as of the end of 2017 was $5.3 million and is approximately $3 million at the end of February. Most importantly, we had no long-term debt.
Our cash and marketable security balances along with the finance facilities we’ve put in place in 2017 are expected to fund our business activities through 2018. As noted in the last year’s conference call, in 2017 we retired the original $8 million convertible loan balance with Resource Capital Funds or RCF with a final cash payment of $5.5 million during the first quarter of 2017.
In July of 2017, we terminated the shareholders agreement with RCF, which provided RCF with equity participation rights and board representation rights.Once again, we note that the retirement of this loan saves us $800,000 per year in interest payments.
Cash used in operations for the 12 months ended December 31, 2017 was approximately $11.6 million, compared to $12.3 million used during the 12 months ended December 31, 2016. The year-over-year reduction was primarily due to a decrease in general administrative costs and interest expense and an increase in interest income from the Laramide promissory note, which is associated with the sale of the Churchrock and Crownpoint properties in January of 2017.
During 2017, our mineral property expenses increased by $1.2 million year-over-year. This increase was due to exploration costs on our lithium properties acquired in 2016 along with deferred lease payments resulting from the renegotiation of the Juan Tafoya and Cebolleta Uranium leases in New Mexico in 2017.
Finally, our net loss for 2017 was approximately $19.3 million versus a loss of approximately $19.6 million compared with the 12 months 2016. Slight improvement was due to a number of factors including the gain of $4.9 million from the sale of our Churchrock and Crownpoint Uranium properties at Laramide. Interest income from the Laramide promissory note and an offset by $11.4 million asset impairment charge recorded primarily against the Cebolleta Uranium property once again due to the declining price of uranium in 2017.
And with that, I’ll turn back to Chris.
Thanks, Jeff, and moving on to Slide 7. Global electric vehicle sales are projected to increase at a compounded annual growth rate of 22% annually through 2025. The transportation sector accounts for 23% of all greenhouse gas emissions which is accelerating demand for low emission alternatives like electric cars.
In addition to the transportation sector, the large energy storage battery sector is growing as well. Demand is expected to be driven by grid and peak demand management and this is the enabling technology for renewable energy. It enables solar panels to release electricity when the sun does not shine and wind turbines to release electricity when the wind does not blow.
Storage battery demand growth is expected to be more than 11% per year. Add to that consumer electronics like the phone in your hand, the laptop on your desk, we expect that demand growth will continue to drive battery demand as we move forward.
Further to that, Germany announced pending legislation this week that allows banning of diesel-powered vehicles at the municipal level and the UK plans to ban petroleum-powered vehicles in a few years. Every major car maker is producing or is planning to produce vehicles that rely upon electricity for propulsion either in part or in whole.
This is driving increased demand for batteries and for the materials that go in them. For every test that you see on the road, we see over 80 pounds of lithium and 200 pounds of graphite.
On to Slide 8, once again, demand drivers for battery materials in summary 230 gigawatt hours of capacity additions are expected in the 15 to 20 batter facilities worldwide at a cost of over 10 billion dollars. This includes lithium ion alkaline-power cells and led acid batteries.
Lithium is a key supply component for the growing market in transportation batteries. But remember that all of these battery types use conductivity-enhancers made from advanced graphite products.
On to Slide 9, our acquisition of Alabama Graphite provides key synergies and leverage to these markets. This significantly increases Westwater’s leverage to fast-growing energy minerals end-markets, while simultaneously pulling forward revenue and cash flow opportunities.
This project and the development targets place it in the lowest cost quartile when compared to the world’s producers. It’s the only battery-grade graphite project in the contiguous USA and we expect this transaction to close in the second quarter of 2018.
The Coosa Graphite project is an American project. Current production of graphite and batteries is controlled by China with unsustainable environmental footprints. Battery manufacturers worldwide are now being held accountable for proper, environmentally sustainable supply chain management.
The importance of the U.S. Security of supply has been affirmed through a Presidential Executive Order. This executive order is presently in its comment period and remember that the list of critical materials includes all three of our portfolio products Uranium, Lithium and soon to be Graphite. These are materials that are critical to the safety and security of the United States.
On to Slide 10. Our look at the business plan for Coosa has resulted in an enhanced business plan that derisks the project plan itself and derisks the product profile. Processing now uses a 50 year old proven environmentally sustainable technology using a version as an electric arc furnace. Processing begins on purchased feedstock widely available right now and the mine is deferred permitting is no longer on the critical path, but it remains a value enhancement project going forward.
The pilot plant starts in 2019 with construction in 2018 generating products for prequalification in large batches and processing on a production level begins in the fourth quarter of 2020 and the economics are not no longer solely dependent on CSPG, the Coated Spherical Purified Graphite. We derisk the product profile as well.
Production starts with a simpler PMG product and this is a product that goes into led acid batteries as a conductivity enhancement, remember that 96% of all batteries sold are led acid at the monster markets. DEXDG, which is delaminated and expanded graphite begins production in 2021. These are conductivity enhancers for alkaline power cells and other cells. And CSPG production starts in 2023.
Note that mining is not expected to start until 2026 removing permitting timelines from the critical path and derisking the production of graphite products for us. Speed to market counts in the batteries material space and this plan works to place advance graphite materials in the markets sooner than originally contemplated.
Slide 11, results of these studies are outlined on this slide. We’ve increased the NPV by almost $50 million through this particular plan. We’ve reduced capital expenditures from $43 plus million now to $30 million and remember that that includes the pilot plant. Positive cash flows advanced by one year from 2022 to 2021 and revenues are advanced from 2022 now to 2020.
Slide 12 shows our project schedule including important milestones that we’ll refer to time and again over the coming year as we begin to develop this project. But once again, remember, that of the $30 million we plan to spend, a $7 million we plan on spending on the pilot plant is included.
On Slide 13, we remind you that our lithium projects are still in process with expanded Columbus Basin, the 14,000 acres and remember that project still has good highway power and ample groundwater access. We own the water rights there.
And our Phase 1 drilling program is complete with encouraging results and Phase 2 planning is underway. At Sal Rico, we’ve got over 13,000 acres in Utah with good road and power access as well. Sample results ranging up to 100 parts per million from shallow aquifers has already been released to the public. Our application for an exploration permit and water rights is underway with State of Utah and we have geophysical data that has been evaluated at this time.
At Railroad Valley in Nevada, we’ve acquired approximately 9300 acres of federal placer mining claims as of June 2017. Project covers an area where company let reconnaissance sediment sampling returned lithium value as high as 366 parts per million. Our water rights application is underway there.
On Slide 14, we remind listeners that Uranium is still a strategic focus. Nuclear power represents the only electrical base load solution for global electric power growth driven by economic expansion and the focus on carbon reduction. This is carbon-free power. The nuclear feeded fleet is expected to grow more than 35% over the next ten years. China, India, Russia and Korea are building or have ordered 130 new reactors.
Over the next couple of years, we expect the price of uranium to return to higher levels, but for the present it languishes at around $20 to $22 a pound. Our Temrezli Project once built, produces – is expected to produce Uranium at around $17 a pound with all-in sustaining cost at around 25, but that project needs $35 a pound to provide a proper return on investment.
On Slide 15, we talk about the Westwater value proposition. We continued to expand our portfolio in green energy materials leverage to the battery material sector with acquisitive graphite project in Alabama and three lithium exploration projects in the Western U.S. is core to this. And we retain leverage to the rising uranium price with a low cost Temrezli project in Turkey and one of the largest uranium mineralization basins in the United States with two licensed processing facilities in Texas.
As Jeff said, and we reiterate, we are debt free with cash and financial facilities in place to fund through 2018. We are monetizing non-core assets. We had continued reclamation success in Texas and news flow throughout the year of 2018 is expected to come from our Coosa graphite project development and project milestones as we detailed earlier in the presentation.
Exploration and water rights milestone achievements on our lithium projects and water rights application in process at River Valley and Sal Rico.
And with that, operator I would like to open it up for questions.
[Operator Instructions] Our first question comes from Debra Fiakas of Crystal Equity Research.
Thank you. Thank you for taking my questions. I wanted to ask first about a couple of your lithium projects. You have – I think in your annual filing talked about next steps for both of those two projects and going on with additional exploration and permitting, how should shareholders think about those two projects, I think, Columbus and Sal Rico? How should they – we think about those in terms of the expenses or the budget requirements to fulfill those next steps?
Thanks, for the question, Deb and thanks for listening in on the presentation. With regard to our projected expenses for the lithium projects themselves, as they’ll track in a $0.5 million to $1 million range, provided we see a reason to go do that.
And by that I mean, we need to secure the water rights in those two projects for which we do not have them – the Railroad Valley and Sal Rico projects, because those are key to production, Columbus Basin has the water rights already associated with it. The $0.5 million then to $1 million worth of expenditures are really going to be associated with drilling activities once we decide how they are going to be positioned.
We are still working on some geophysical data for all three projects. We still have some drilling plans yet to be made for those. So, we’ll be talking about those as the year unfolds. Thanks, Deb.
Thank you. And, could I also just ask as a follow-up, the activities that you explain associated with those two projects, the cost requirements, can I assume that those are pretty much the same sort of cash requirement that we’ve been observing over the last year or do you see an acceleration in the amount that you have to invest in them?
I would really guide to think about those cash requirements really be similar to the last year and scope.
Okay. And then, if I could ask one more question in regard to your plans to acquire Alabama Graphite already it sounds like you’ve been in there studying hard on what you can do with that asset and you’ve outlined things that again chart that.
So, quite interesting in the presentation. It sounds like you’ve given us some thoughts and made some changes. Have you had a chance now with this idea of some – an alternative production process and an alternative graphite source, at least for the time-being? Have you had a chance to test that, the output or create some product with those adjustments?
Yes, so, first of all, I want to say that the project planning and redesign was done jointly with Alabama Graphite and Westwater’s technical teams. I am really proud of the way these two teams have begun to work together to make this a better faster and more efficient project.
With regard to product raw materials, we have just completed sampling on the Coosa project itself, so that we can do a complete geochemical analysis of the graphite ores. So that when we do go out to market, we should be more able to buy ores that are similar to that material, so that we don’t shock the system once we get running.
Okay. Very good. Thank you.
Our next question comes from Don Crown of Westwater Resources.
No, I am not from Westwater Resources. I am a private investor. I apologize if that was a mistake. But, my question is about, recently in the news, I had read that Apple is making deals with cobalt mining companies directly.
One of their main concerns is that they thought that the environmental impact that the current mining companies were using weren’t up to a standard that perhaps you’d be able to provide other companies. I saw that, your M&A activity might be increasing, do you see any line of maybe working with the General Motors, or Ford or company like that directly, - you might want to be looking to cost – be more cost-effective for themselves. Thank you.
You bet, Don. So there is the possibility that we can work directly with the battery manufacturers and the automobile companies, the end-users of those products. As we move along, we do not yet have much in the way of direct discussions with the General Motors and the Apples of the world of course. But, I think it is important as the economics are for Apple for instance to reach through all the way to the mine level for cobalt and we read that very same article.
We believe that companies like Apple, Tesla, other battery manufacturers are really going to be held accountable for its environmental sustainability in their supply chain management. And that is really going to be as how we believe a tailwind for producers and suppliers outside of China, where we are certainly in the United States, where we have a robust and well-known set of regulations and practices, best practices for environmental stewardship.
So that we can hold our heads pretty high in that sustainable supply chain management. But in the end, we will still compete on cost and as we pointed out earlier, this is a project in the lowest cost quartile of graphite products already. Thanks, Don.
Just to follow-up and thank you for that. That was really informative. Now that the steel tariffs and the aluminum tariffs kind of encompass that same idea and predicate about cleanliness and bringing it back to America. Do you think that your positioning now with your portfolio domestically rises you above your current share value?
Well, Don, we would like to believe so for certain. And where we see tailwinds already developed in our domestic marketplace is this presidential order on critical materials for the United States, this is a process that is maturing as we speak a week or so ago, we went out for comment and we were extremely gratified to know that not just uranium and lithium, but also graphite were on the list of critical materials for the safety and security of the United States.
What we expect to manifest from this process is a robust list of these materials. We assume that’s going to continue to list all three products in our particular portfolio. And then a plan to streamline access and even perhaps permitting for those materials as we go forward. We’ll know more about that in August, but we are very happy about the progress so far.
Our next question comes from Abraham Rasem [Ph] a private investor.
Hi. We have 31 NDAs which testing has been done on graphite from the Coosa project itself. So now that we are going to be getting graphite from other mines. How are we going to square that sort of testing that’s been done over the past, let’s say, year to year-and-a-half with now different graphite characteristics.
Abraham, thank you very much for your question. First of all, what we are doing on the front-end of this process is to make sure that we do not actually introduce new variables to this process. And by that, I mean the raw materials from which we process is advanced graphite materials should not be fundamentally different by design than we expect out of the Coosa project and that’s a design parameter if you will.
So, what we’ve done is over the last couple of weeks, we’ve done geochemical sampling on the ground at Coosa and are processing those samples right now to ensure that we do not present to different product or more challenging products certainly into those potential customers.
Okay, great. Thank you.
Our next question comes from Walker Hunt [Ph], an individual investor.
Hi, as we know the price of Uranium is low especially over the past few years and my question for the administration is, why haven’t we delved into energy processes ourselves such as opening up our own nuclear power plant to take advantage of the low price and make a profit in that way?
Well, thank you for your question. Really the integration of the energy supply all the way down to the power plant level is not something we contemplate at Westwater. There is a number of reasons for that. The chief among them are the actual cost of fuel or a nuclear power plant is merely 6% or less of its operating cost.
So the nuclear power plants are totally incentive frankly to the price they pay for uranium and that puts us a little bit on the back foot in terms of securing counter facts. The construction of a power plant is really left up to those that are already highly skilled at doing so. And as you – if you follow the news around Westinghouse and Toshiba over the past year or so, even they struggle putting together an executable plan for building a power plant.
Not to say it can’t be done, there is a 130 of them under construction right now. But, it would be a kin to us golfing at a pro amateur tournaments where we might be with the scratch list golfer, but the guys running Westwater really with golf handicaps and let’s call it the low 30s on our best day might still golf adequately, but the pros really need to carry the team.
Thank you. That makes sense.
[Operator Instructions] Our next question comes from Debra Fiakas of Crystal Equity Research.
Thank you for letting me ask another question. I wanted to return to the graphite topic and to the pilot plant you described. Could you give us a couple of details on the capacity of that pilot plant and where it will be located?
Our plan is to build a 700 ton per year pilot plant facility as part of the reason for the 700 tons is it is scalable at a 10 times rate pretty easily from pilot plant to production level. Secondly, it provides critical amounts of material that we can qualify in larger batches for our potential customers. We anticipate that that pilot plant is going to be built in Chicago, where the expertise for building that was already located.
Okay, thank you.
This concludes the question and answer session. I would like to turn the conference back over to Christopher Jones for any closing remarks.
Thanks, Arryal and thanks to everybody for listening and asking these questions. We really appreciate your time and your efforts in doing so. And once again, thanks from the Westwater team and have a great day.
This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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