UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒⌧Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 20192020
Or
☐◻Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 001‑33404001-33404
WESTWATER RESOURCES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE | |
|
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
6950 S. Potomac Street, Suite 300, Centennial, Colorado 80112
(Address of Principal Executive Offices, Including Zip Code)
(303) 531‑0516531-0516
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol(s) |
| Name of Each Exchange on Which Registered |
Common Stock, $0.001 par value | | WWR | | Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒⌧ No ☐◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒⌧ No ☐◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑212b-2 of the Exchange Act.
Large accelerated filer | | Accelerated filer |
| | |
Non-accelerated filer | | Smaller reporting company |
| | |
| | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑212b-2 of the Exchange Act). Yes ☐◻ No ☒⌧
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of Each Class of Common Stock | | Number of Shares Outstanding |
Common Stock, $0.001 par value | |
|
WESTWATER RESOURCES, INC.
3 | |
| |
3 | |
| |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 25 |
| |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 36 |
| |
36 | |
| |
37 | |
| |
37 | |
| |
37 | |
| |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 37 |
| |
37 | |
| |
38 | |
| |
38 | |
| |
39 | |
| |
39 |
2
PART I — FINANCIAL INFORMATION
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(expressed in thousands of dollars, except share amounts)
(unaudited)
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
| September 30, |
| December 31, | ||||||||||
|
| Notes |
| 2019 |
| 2018 | ||||||||||
| | | | | | | | | ||||||||
|
|
|
| September 30, |
| December 31, | ||||||||||
| | Notes | | 2020 | | 2019 | ||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
| ||||||||
| | | | | | | | | ||||||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
Cash and cash equivalents |
| 1 |
| $ | 716 |
| $ | 1,577 |
| 1 | | $ | 5,480 |
| $ | 1,870 |
Marketable securities |
| 6 |
|
| — |
|
| 415 | ||||||||
Assets held for sale |
| 4,5 |
|
| — |
|
| 1,545 | ||||||||
Prepaid and other current assets |
|
|
|
| 634 |
|
| 643 |
|
| |
| 431 |
|
| 340 |
Current assets held for sale |
| 8 | |
| 9,306 |
|
| 151 | ||||||||
Total Current Assets |
|
|
|
| 1,350 |
|
| 4,180 |
|
| |
| 15,217 |
|
| 2,361 |
|
|
|
|
|
|
|
|
| ||||||||
| | | | | | | | | ||||||||
Property, plant and equipment, at cost: |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Property, plant and equipment |
|
|
|
| 91,770 |
|
| 91,772 |
|
| |
| 9,785 |
|
| 9,780 |
Less accumulated depreciation and depletion |
|
|
|
| (71,289) |
|
| (71,219) |
|
| |
| (789) |
|
| (785) |
Net property, plant and equipment |
| 7 |
|
| 20,481 |
|
| 20,553 |
| 6 | |
| 8,996 |
|
| 8,995 |
Operating lease right-of-use assets |
| 14 |
|
| 513 |
|
| — |
| 14 | |
| 383 |
|
| 470 |
Restricted cash |
| 1,6 |
|
| 3,784 |
|
| 3,732 |
| 1,5 | |
| 807 |
|
| 797 |
Assets held for sale, non-current |
| 4 |
|
| — |
|
| 1,493 |
| 8 | |
| — |
|
| 14,356 |
Total Assets |
|
|
| $ | 26,128 |
| $ | 29,958 |
|
| | $ | 25,403 |
| $ | 26,979 |
|
|
|
|
|
|
|
|
| ||||||||
|
|
| |
|
|
|
|
| ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| | | | | | | | | ||||||||
Current Liabilities: |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Accounts payable |
|
|
| $ | 1,247 |
| $ | 776 |
|
| | $ | 1,205 |
| $ | 827 |
Accrued liabilities |
|
|
|
| 1,658 |
|
| 1,688 |
| | |
| 787 |
|
| 994 |
Current portion of asset retirement obligations |
| 9 |
|
| 895 |
|
| 708 | ||||||||
Operating lease liability - current |
| 14 |
|
| 152 |
|
| — |
| 14 | |
| 149 |
|
| 147 |
Current liabilities held for sale | | 8 | | | 7,758 | | | 1,701 | ||||||||
Total Current Liabilities |
|
|
|
| 3,952 |
|
| 3,172 |
|
| |
| 9,899 |
|
| 3,669 |
|
|
|
|
|
|
|
|
| ||||||||
Asset retirement obligations, net of current portion |
| 9 |
|
| 5,327 |
|
| 5,495 | ||||||||
Other long-term liabilities |
|
|
|
| 500 |
|
| 500 | ||||||||
| | | | | | | | | ||||||||
Operating lease liability, net of current |
| 14 |
|
| 369 |
|
| — |
| 14 | |
| 245 |
|
| 332 |
Liabilities held for sale, non current | | 8 | | | — | | | 5,914 | ||||||||
Total Liabilities |
|
|
|
| 10,148 |
|
| 9,167 |
|
| |
| 10,144 |
|
| 9,915 |
|
|
|
|
|
|
|
|
| ||||||||
| | | | | | | | | ||||||||
Commitments and Contingencies |
| 13 |
|
|
|
|
|
|
| 13 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| | | | | | | | | ||||||||
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Common stock, 100,000,000 shares authorized, $.001 par value; |
|
|
|
|
|
|
|
|
|
| |
| | | | |
Issued shares - 2,125,156 and 1,436,555 respectively |
|
|
|
|
|
|
|
| ||||||||
Outstanding shares - 2,124,995 and 1,436,394 respectively |
| 10 |
|
| 2 |
|
| 1 | ||||||||
Issued shares – 10,434,012 and 3,339,541 respectively |
| | |
| | | | | ||||||||
Outstanding shares - 10,433,851 and 3,339,380 respectively | | 11 | | | 10 | | | 3 | ||||||||
Paid-in capital |
| 10,11 |
|
| 315,893 |
|
| 313,012 |
| 10,11 | |
| 333,451 |
|
| 319,758 |
Accumulated other comprehensive loss |
|
|
|
| — |
|
| (90) | ||||||||
Accumulated deficit |
|
|
|
| (299,657) |
|
| (291,874) |
|
| |
| (317,944) |
|
| (302,439) |
Less: Treasury stock (161 and 161 shares, respectively), at cost |
|
|
|
| (258) |
|
| (258) |
|
| |
| (258) |
|
| (258) |
Total Stockholders’ Equity |
|
|
|
| 15,980 |
|
| 20,791 |
|
| |
| 15,259 |
|
| 17,064 |
|
|
|
|
|
|
|
|
| ||||||||
| | | | | | | | | ||||||||
Total Liabilities and Stockholders’ Equity |
|
|
| $ | 26,128 |
| $ | 29,958 |
|
| | $ | 25,403 |
| $ | 26,979 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in thousands of dollars, except share and per share amounts)
(unaudited)
| | | | | | | | | | | | | | | |
| | | | For the Three Months Ended | | For the Nine Months Ended | | ||||||||
| | | | September 30, | | September 30, | | ||||||||
| | Notes |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
| | | | | | | | | | | | | | | |
Operating Expenses: | | |
| |
|
| |
|
| |
|
| |
|
|
Mineral property expenses | | 7 | | $ | (12) |
| $ | (12) | | $ | (18) |
| $ | (77) | |
Product development expenses | | | | | (1,641) | | | (19) | | | (1,942) | | | (51) | |
General and administrative expenses | | | |
| (1,536) |
|
| (1,003) | |
| (4,106) |
|
| (3,583) | |
Arbitration costs | | | |
| (171) |
|
| (146) | |
| (868) |
|
| (631) | |
Depreciation and amortization | | | |
| 19 |
|
| (3) | |
| (5) |
|
| (5) | |
Total operating expenses | | | |
| (3,341) |
|
| (1,183) | |
| (6,939) |
|
| (4,347) | |
| | | |
|
|
|
|
| |
|
|
|
|
| |
Non-Operating Income/(Expenses): | | | |
|
|
|
|
| |
|
|
|
|
| |
Loss on sale of marketable securities | | 3,5 | |
| — |
|
| — | |
| — |
|
| (720) | |
Interest income | | 3 | |
| — |
|
| 13 | |
| — |
|
| 347 | |
Gain on sale of fixed assets | | | | | 1 | | | — | | | 22 | | | — | |
Other income (expense) | | | |
| (22) |
|
| — | |
| (15) |
|
| (11) | |
Total other income (expense) | | | |
| (21) |
|
| 13 | |
| 7 |
|
| (384) | |
| | | |
| |
|
|
| |
| |
|
|
| |
Net Loss from Continuing Operations | | | | | (3,362) |
| | (1,170) | | | (6,932) |
| | (4,731) | |
| | | |
|
|
|
|
| |
|
|
|
|
| |
Net Loss from Discontinued Operations | | 8 | | | (6,389) | | | (664) | | | (8,573) | | | (3,052) | |
| | | | | | | | | | | | | | | |
Net Loss | | | | $ | (9,751) | | $ | (1,834) | | $ | (15,505) | | $ | (7,783) | |
| | | | | | | | | | | | | | | |
Other Comprehensive Income | |
| |
| | | | | | | | | | | |
Transfer to realized loss upon sale of available-for-sale securities | |
| |
| — |
|
| — | |
| — |
|
| 90 | |
Comprehensive Loss | |
| | $ | (9,751) |
| $ | (1,834) | | $ | (15,505) |
| $ | (7,693) | |
| |
| |
|
|
|
|
| |
|
|
|
|
| |
BASIC AND DILUTED LOSS PER SHARE | |
| | $ | (1.23) |
| $ | (0.95) | | $ | (2.63) |
| $ | (4.66) | |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | |
| |
| 7,904,522 |
|
| 1,931,419 | |
| 5,905,850 |
|
| 1,649,145 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
34
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in thousands of dollars, except share and per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||
|
|
|
| September 30, |
| September 30, |
| ||||||||
|
| Notes |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property expenses |
| 8 |
| $ | (851) |
| $ | (955) |
| $ | (2,309) |
| $ | (2,706) |
|
General and administrative expenses |
|
|
|
| (1,359) |
|
| (1,705) |
|
| (4,764) |
|
| (5,437) |
|
Arbitration costs |
|
|
|
| (146) |
|
| (98) |
|
| (631) |
|
| (225) |
|
Acquisition related costs |
| 3 |
|
| — |
|
| — |
|
| — |
|
| (333) |
|
Accretion of asset retirement obligations |
| 9 |
|
| (197) |
|
| (133) |
|
| (353) |
|
| (401) |
|
Depreciation and amortization |
|
|
|
| (23) |
|
| (27) |
|
| (71) |
|
| (94) |
|
Impairment of uranium properties |
| 7 |
|
| — |
|
| — |
|
| — |
|
| (17,968) |
|
Total operating expenses |
|
|
|
| (2,576) |
|
| (2,918) |
|
| (8,128) |
|
| (27,164) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Income/(Expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of marketable securities |
| 4 |
|
| — |
|
| (391) |
|
| (720) |
|
| (484) |
|
Interest income |
| 4 |
|
| 13 |
|
| 167 |
|
| 347 |
|
| 513 |
|
Gain on disposal of uranium assets |
| 5 |
|
| 729 |
|
| — |
|
| 729 |
|
| — |
|
Other income (expense) |
|
|
|
| — |
|
| 5 |
|
| (11) |
|
| 123 |
|
Total other income (expense) |
|
|
|
| 742 |
|
| (219) |
|
| 345 |
|
| 152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
| $ | (1,834) |
| $ | (3,137) |
| $ | (7,783) |
| $ | (27,012) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized fair value (decrease) increase on available-for-sale securities |
|
|
| $ | — |
| $ | 279 |
| $ | — |
| $ | (777) |
|
Transfer to realized loss upon sale of available-for-sale securities |
|
|
|
| — |
|
| 391 |
|
| 90 |
|
| 484 |
|
Comprehensive Loss |
|
|
| $ | (1,834) |
| $ | (2,467) |
| $ | (7,693) |
| $ | (27,305) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE |
|
|
| $ | (0.95) |
| $ | (3.07) |
| $ | (4.72) |
| $ | (33.98) |
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
|
|
|
| 1,931,419 |
|
| 1,022,370 |
|
| 1,649,145 |
|
| 795,005 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL CASH FLOW INFORMATION
(expressed in thousands of dollars)
(unaudited)
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
| For the Nine Months Ended September 30, | ||||||||||||
|
| Notes |
| 2019 |
| 2018 | ||||||||||
| | | | | | | | | ||||||||
| | | | For the Nine Months Ended September 30, | ||||||||||||
|
| Notes |
| 2020 |
| 2019 | ||||||||||
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
Net loss |
|
|
| $ | (7,783) |
| $ | (27,012) |
|
| | $ | (15,505) | | $ | (7,783) |
Reconciliation of net loss to cash used in operations: |
|
|
|
|
|
|
|
|
|
| |
|
| |
| |
Non-cash lease expense |
|
|
|
| 8 |
|
| — |
|
| |
| 2 | |
| 8 |
Accretion of asset retirement obligations |
| 9 |
|
| 353 |
|
| 401 |
| 9 | |
| 170 | |
| 353 |
Decrease in restoration and reclamation accrual |
| 9 |
|
| (334) |
|
| (485) | ||||||||
Costs incurred for restoration and reclamation activities | | 9 | | | (501) | | | (334) | ||||||||
Amortization of note receivable discount |
| 4 |
|
| (299) |
|
| (507) | | 3 | | | — | | | (299) |
Amortization of non-cash investor relations fee |
|
|
|
| — |
|
| 21 | ||||||||
Depreciation and amortization |
|
|
|
| 71 |
|
| 94 |
|
| |
| 41 | |
| 71 |
Stock compensation expense |
| 11 |
|
| 255 |
|
| 308 |
| 11 | |
| 170 | |
| 255 |
Common stock issued for consulting services |
|
|
|
| — |
|
| 95 | ||||||||
Common stock issued for purchase of lithium mineral interests |
|
|
|
| — |
|
| 114 | ||||||||
Impairment of uranium properties |
| 7 |
|
| — |
|
| 17,968 | | | | | 5,200 | | | — |
Gain on disposal of uranium assets |
| 5 |
|
| (729) |
|
| (11) | ||||||||
Gain on disposal of uranium properties | | 3,4 | | | — | | | (729) | ||||||||
Loss on sale of marketable securities |
| 4 |
|
| 720 |
|
| 484 |
| 3 | |
| — | |
| 720 |
Effect of changes in operating working capital items: |
|
|
|
|
|
|
|
| | | | | | | | |
Decrease in prepaids and other |
|
|
|
| 105 |
|
| 195 | ||||||||
Increase (decrease) in payables and accrued liabilities |
|
|
|
| 441 |
|
| (697) | ||||||||
(Increase)/Decrease in prepaids and other assets |
|
| |
| (29) | |
| 105 | ||||||||
Increase in payables and accrued liabilities |
|
| |
| 318 | |
| 441 | ||||||||
Net Cash Used In Operating Activities |
|
|
|
| (7,192) |
|
| (9,032) |
|
| |
| (10,134) | |
| (7,192) |
|
|
|
|
|
|
|
|
| ||||||||
| | | | | | | | | ||||||||
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
Proceeds from disposal of uranium assets, net | | 4 | | | — | | | 2,470 | ||||||||
Proceeds from the sale of securities, net |
| 4 |
|
| 536 |
|
| 834 |
| 3 | |
| — | |
| 536 |
Proceeds from sale of uranium assets, net |
| 5 |
|
| 2,470 |
|
| 11 | ||||||||
Proceeds from note receivable |
| 4 |
|
| 750 |
|
| 1,134 |
| 3 | |
| — | |
| 750 |
Acquisition of Alabama Graphite, net of cash acquired |
| 3 |
|
| — |
|
| (1,547) | ||||||||
Net Cash Provided By Investing Activities |
|
|
|
| 3,756 |
|
| 432 | ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Capital expenditures |
| | |
| (107) | |
| — | ||||||||
Net Cash (Used In)/Provided By Investing Activities |
|
| |
| (107) | |
| 3,756 | ||||||||
| | | | | | | | | ||||||||
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
Proceeds from note payable | | 16 | | | 331 | | | — | ||||||||
Issuance of common stock, net |
| 10 |
|
| 2,628 |
|
| 5,917 |
| 11 | |
| 13,530 | |
| 2,628 |
Payment of minimum withholding taxes on net share settlements of equity awards |
|
|
|
| (1) |
|
| (5) |
|
| |
| — | |
| (1) |
Net Cash Provided By Financing Activities |
|
|
|
| 2,627 |
|
| 5,912 |
|
| |
| 13,861 | |
| 2,627 |
|
|
|
|
|
|
|
|
| ||||||||
Net decrease in cash, cash equivalents and restricted cash |
|
|
|
| (809) |
|
| (2,688) | ||||||||
|
|
| |
|
| |
|
| ||||||||
Net increase/(decrease) in cash, cash equivalents and restricted cash |
|
| |
| 3,620 | |
| (809) | ||||||||
Cash, Cash Equivalents and Restricted Cash, Beginning of Period |
|
|
|
| 5,309 |
|
| 7,722 |
|
| |
| 5,667 | |
| 5,309 |
Cash, Cash Equivalents and Restricted Cash, End of Period |
|
|
| $ | 4,500 |
| $ | 5,034 |
|
| | $ | 9,287 | | $ | 4,500 |
Cash Paid During the Period for: |
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
Interest |
|
|
| $ | 4 |
| $ | 7 |
|
| | $ | 5 | | $ | 4 |
Supplemental Non-Cash Information with Respect to Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
Securities received for payment of notes receivable – Laramide |
|
|
|
| 750 |
|
| 750 |
|
| | | — | | | 750 |
Common stock issued for acquisition of Alabama Graphite |
|
|
|
| — |
|
| 6,394 | ||||||||
Stock options and warrants issued for acquisition of Alabama Graphite |
|
|
|
| — |
|
| 89 | ||||||||
Common stock issued for consulting services |
|
|
|
| — |
|
| 95 | ||||||||
Common stock issued for purchase of lithium mineral interests |
|
|
|
| — |
|
| 114 | ||||||||
Total Non-Cash Investing and Financing Activities for the Period |
|
|
| $ | 750 |
| $ | 7,442 |
|
| | $ | — | | $ | 750 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(expressed in thousands of dollars, except share amounts)
(unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | | | | | |
| | | | | | | | | | Other | | | | | | | | | | |
| | Common Stock | | Paid-In | | Comprehensive | | Accumulated | | Treasury | | | | |||||||
Nine months ended September 30, 2020 |
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Stock |
| Total | ||||||
Balances, January 1, 2020 |
| 3,339,541 | | $ | 3 | | $ | 319,758 | | $ | — | | $ | (302,439) | | $ | (258) | | $ | 17,064 |
Net loss |
| — | |
| — | | | — | |
| — | |
| (15,505) | |
| — | |
| (15,505) |
Common stock issued, net of issuance costs |
| 7,093,960 | |
| 7 | | | 13,523 | |
| — | |
| — | |
| — | |
| 13,530 |
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes |
| 511 | |
| — | | | 170 | |
| — | |
| — | |
| — | |
| 170 |
Balances, September 30, 2020 |
| 10,434,012 | | $ | 10 | | $ | 333,451 | | $ | — | | $ | (317,944) | | $ | (258) | | $ | 15,259 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 2020 | | | | | | | | | | | | | | | | | | | | |
Balances, June 30, 2020 | | 6,664,976 | | $ | 7 | | $ | 326,073 | | $ | — | | $ | (308,193) | | $ | (258) | | $ | 17,629 |
Net loss |
| — | |
| — | |
| — | |
| — | |
| (9,751) | |
| — | |
| (9,751) |
Common stock issued, net of issuance costs |
| 3,769,036 | |
| 3 | |
| 7,236 | |
| — | |
| — | |
| — | |
| 7,239 |
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes |
| — | |
| — | |
| 142 | |
| — | |
| — | |
| — | |
| 142 |
Balances, September 30, 2020 |
| 10,434,012 | | $ | 10 | | $ | 333,451 | | $ | — | | $ | (317,944) | | $ | (258) | | $ | 15,259 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | | | | | |
| | | | | | | | | | Other | | | | | | | | | | |
| | Common Stock | | | | Comprehensive | | Accumulated | | | | | | |||||||
Nine months ended September 30, 2019 |
| Shares |
| Amount |
| Paid-In Capital |
| Income (Loss) |
| Deficit |
| Treasury Stock |
| Total | ||||||
Balances, January 1, 2019 |
| 1,436,555 | | $ | 1 | | $ | 313,012 | | $ | (90) | | $ | (291,874) | | $ | (258) | | $ | 20,791 |
Net loss |
| — | |
| — | |
| — | |
| — | |
| (7,783) | |
| — | |
| (7,783) |
Common stock issued, net of issuance costs |
| 688,208 | |
| 1 | |
| 2,628 | |
| — | |
| — | |
| — | |
| 2,629 |
Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes |
| 393 | |
| — | |
| 254 | |
| — | |
| — | |
| — | |
| 254 |
Minimum withholding taxes on net share settlements of equity awards |
| — | | | — | | | (1) | | | — | | | — | | | — | | | (1) |
Transfer to realized loss upon sale of available for sale securities |
| — | |
| — | |
| — | |
| 90 | |
| — | |
| — | | | 90 |
Balances, September 30, 2019 |
| 2,125,156 | | $ | 2 | | $ | 315,893 | | $ | — | | $ | (299,657) | | $ | (258) | | $ | 15,980 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 2019 | | | | | | | | | | | | | | | | | | | | |
Balances, June 30, 2019 |
| 1,658,371 | | $ | 2 | | $ | 314,179 | | $ | — | | $ | (297,823) | | $ | (258) | | $ | 16,100 |
Net loss |
| — | |
| — | |
| — | |
| — | |
| (1,834) | |
| — | |
| (1,834) |
Common stock issued, net of issuance costs |
| 466,785 | |
| — | |
| 1,475 | |
| — | |
| — | |
| — | |
| 1,475 |
Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes |
| — | |
| — | |
| 239 | |
| — | |
| — | |
| — | |
| 239 |
Balances, September 30, 2019 |
| 2,125,156 | | $ | 2 | | $ | 315,893 | | $ | — | | $ | (299,657) | | $ | (258) | | $ | 15,980 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(expressed in thousands of dollars, except share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| |
|
| Common Stock |
| Paid-In |
| Comprehensive |
| Accumulated |
| Treasury |
|
|
| |||||||
Nine months ended September 30, 2019 |
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Stock |
| Total | ||||||
Balances, January 1, 2019 |
| 1,436,555 |
| $ | 1 |
| $ | 313,012 |
| $ | (90) |
| $ | (291,874) |
| $ | (258) |
| $ | 20,791 |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (7,783) |
|
| — |
|
| (7,783) |
Common stock and common stock purchase warrants issued, net of issuance costs |
| 688,208 |
|
| 1 |
|
| 2,628 |
|
| — |
|
| — |
|
| — |
|
| 2,629 |
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes |
| 393 |
|
| — |
|
| 254 |
|
| — |
|
| — |
|
| — |
|
| 254 |
Minimum withholding taxes on net share settlements of equity awards |
| — |
|
| — |
|
| (1) |
|
| — |
|
| — |
|
| — |
|
| (1) |
Transfer to realized loss upon sale of available for sale securities |
| — |
|
| — |
|
| — |
|
| 90 |
|
| — |
|
| — |
|
| 90 |
Balances, September 30, 2019 |
| 2,125,156 |
| $ | 2 |
| $ | 315,893 |
| $ | 0 |
| $ | (299,657) |
| $ | (258) |
| $ | 15,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2019 |
| 1,658,371 |
| $ | 2 |
| $ | 314,179 |
| $ | — |
| $ | (297,823) |
| $ | (258) |
| $ | 16,100 |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (1,834) |
|
| — |
|
| (1,834) |
Common stock and common stock purchase warrants issued, net of issuance costs |
| 466,785 |
|
| — |
|
| 1,475 |
|
| — |
|
| — |
|
| — |
|
| 1,475 |
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes |
| — |
|
| — |
|
| 239 |
|
| — |
|
| — |
|
| — |
|
| 239 |
Balances, September 30, 2019 |
| 2,125,156 |
| $ | 2 |
| $ | 315,893 |
| $ | — |
| $ | (299,657) |
| $ | (258) |
| $ | 15,980 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
WESTWATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(expressed in thousands of dollars, except share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| |
|
| Common Stock |
|
|
| Comprehensive |
| Accumulated |
|
|
|
|
| |||||||
Nine months ended September 30, 2018 |
| Shares |
| Amount |
| Paid-In Capital |
| Income (Loss) |
| Deficit |
| Treasury Stock |
| Total | ||||||
Balances, January 1, 2018 |
| 555,806 |
| $ | 1 |
| $ | 297,277 |
| $ | 287 |
| $ | (256,190) |
| $ | (258) |
| $ | 41,117 |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (27,012) |
|
| — |
|
| (27,012) |
Common stock issued, net of issuance costs |
| 353,909 |
|
| — |
|
| 5,917 |
|
| — |
|
| — |
|
| — |
|
| 5,917 |
Common stock, warrants and options issued for acquisition of Alabama Graphite |
| 232,504 |
|
| — |
|
| 6,483 |
|
| — |
|
| — |
|
| — |
|
| 6,483 |
Common stock issued for consulting services |
| 3,455 |
|
| — |
|
| 95 |
|
| — |
|
| — |
|
| — |
|
| 95 |
Common stock issued for purchase of lithium mineral interests |
| 4,000 |
|
| — |
|
| 114 |
|
| — |
|
| — |
|
| — |
|
| 114 |
Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes |
| 419 |
|
| — |
|
| 308 |
|
| — |
|
| — |
|
| — |
|
| 308 |
Minimum withholding taxes on net share settlements of equity awards |
| — |
|
| — |
|
| (5) |
|
| — |
|
| — |
|
| — |
|
| (5) |
Unrealized holding loss on available-for-sale securities |
| — |
|
| — |
|
| — |
|
| (777) |
|
| — |
|
| — |
|
| (777) |
Transfer to realized loss upon sale of available for sale securities |
| — |
|
| — |
|
| — |
|
| 484 |
|
| — |
|
| — |
|
| 484 |
Balances, September 30, 2018 |
| 1,150,093 |
| $ | 1 |
| $ | 310,189 |
| $ | (6) |
| $ | (283,202) |
| $ | (258) |
| $ | 26,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2018 |
| 943,419 |
| $ | 1 |
| $ | 308,857 |
| $ | (676) |
| $ | (280,065) |
| $ | (258) |
| $ | 27,859 |
Net loss |
|
|
|
|
|
|
|
|
|
| — |
|
| (3,137) |
|
| — |
|
| (3,137) |
Common stock issued, net of issuance costs |
| 206,674 |
|
| — |
|
| 1,186 |
|
| — |
|
| — |
|
| — |
|
| 1,186 |
Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes |
| — |
|
| — |
|
| 146 |
|
| — |
|
| — |
|
| — |
|
| 146 |
Unrealized holding loss on marketable securities |
| — |
|
| — |
|
| — |
|
| 279 |
|
| — |
|
| — |
|
| 279 |
Transfer to realized loss upon sale of available-for-sale securities |
| — |
|
| — |
|
| — |
|
| 391 |
|
| — |
|
| — |
|
| 391 |
Balances, September 30, 2018 |
| 1,150,093 |
| $ | 1 |
| $ | 310,189 |
| $ | (6) |
| $ | (283,202) |
| $ | (258) |
| $ | 26,724 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for Westwater Resources, Inc. (the “Company,” “we,” “us,” “WWR” or “Westwater”), formerly known as Uranium Resources, Inc., have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10‑Q10-Q and Rule 8‑038-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying statements should be read in conjunction with the audited financial statements included in Westwater Resources, Inc.’s 20182019 Annual Report on Form 10‑K.10-K. In the opinion of management, all adjustments (which are of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 20192020 are not necessarily indicative of the results that may be expected for any other period including the full year ending December 31, 2019.2020.
Significant Accounting Policies
Our significant accounting policies are detailed in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements within our Annual Report on Form 10‑K10-K for the year ended December 31, 2018. Refer to Note 14 for revisions made to our lease accounting policies resulting from our adoption of the new lease accounting standard effective January 1, 2019.
Reverse Stock Split
Immediately following the close of trading on April 22, 2019, the Company effected a one-for-fifty reverse stock split of its common stock. With the reverse stock split, every fifty shares of the Company’s issued and outstanding common stock were combined into one issued and outstanding share of common stock. The reverse stock split reduced the number of shares outstanding from approximately 74.7 million shares to approximately 1.5 million shares. The reverse stock split did not have any effect on the par value of the Company’s common stock. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would have resulted were settled in cash. All share data herein has been retroactively adjusted for the reverse stock split.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” which supersedes existing guidance for lease accounting. This new standard requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The new standard requires a dual approach for lessee accounting under which a lessee accounts for leases as finance leases or operating leases with the recognition of a right-of-use asset and a corresponding lease liability. For finance leases, the lessee recognizes interest expense and amortization of the right-of-use asset, and for operating leases, the lessee recognizes straight-line lease expense. The new lease accounting standard along with the clarifying amendments subsequently issued byAugust 2018, the FASB collectively became effectiveissued ASU 2018-13, “Fair Value Measurement (ASC 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. This update modifies the Company on January 1, 2019.disclosure requirements for fair value measurements by removing, modifying or adding disclosures. The Company adopted the new lease accounting standard by applying the new lease guidance at the adoption date onthis pronouncement effective January 1, 2019, and as allowed under the standard, used the modified retrospective method and elected not to restate comparative periods. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard.2020. The Company did not elect the hindsight practical expedient to determine the lease term for existing leases. As of January 1, 2019, in connection with the adoption of ASU 2018-13 has not had a material impact on the new lease accounting standard, the Company recorded a right-of-use lease asset totaling $0.6 million with a corresponding lease liability totaling $0.6 million. Refer to Note 14 for further details on our adoption of the new lease accounting standard.
8
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020.
In June 2016, the FASB issued ASU 2016‑13,2016-13, “Measurement of Credit Losses on Financial Instruments”. ASU 2016‑132016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to estimate lifetime expected credit losses and recognize an allowance against the related instruments. For available for sale debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. The adoption of this update, if applicable, will result in earlier recognition of losses and impairments. ASU 2016-13 will be effective for interim and annual periods beginning after December 15, 2022.
In November 2018, the FASB issued ASU 2018‑19,2018-19, “Codification Improvements to ASC 326, Financial Instruments – Credit Losses.” ASU 2016‑132016-13 introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost basis. That methodology replaces the probable, incurred loss model for those assets. ASU 2018‑192018-19 is the final version of Proposed Accounting Standards Update 2018‑270,2018-270, which has been deleted. Additionally, the amendments clarify that receivables arising from operating leases are not within the scope of Subtopic 326‑20.326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842, Leases. ASU 2018-19 will be effective for interim and annual periods beginning after December 15, 2022.
7
These updates are effective beginning January 1, 2023, and theWESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company is currently evaluating ASU 2016‑132016-13, ASU 2018-19 and ASU 2018‑19 and2019-12 for the potential impact of adopting this guidance on its financial reporting.
In August 2018, the FASB issued ASU 2018‑13, “Fair Value Measurement (ASC 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. This update modifies the disclosure requirements for fair value measurements by removing, modifying or adding disclosures. ASU 2018‑13 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. Certain disclosures in the update are applied retrospectively, while others are applied prospectively. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported within the consolidated balance sheet that sum to the total of the same such amounts shown in the statement of cash flows.
|
|
|
|
|
|
| ||||||
|
| As of September 30, | ||||||||||
| | | | | | | ||||||
| | As of September 30, | ||||||||||
(thousands of dollars) |
| 2019 |
| 2018 |
| 2020 |
| 2019 | ||||
Cash and cash equivalents |
| $ | 716 |
| $ | 1,366 | | $ | 5,480 | | $ | 716 |
Restricted cash - pledged deposits for performance bonds |
|
| 3,784 |
|
| 3,668 | ||||||
Restricted cash included in assets held for sale (Note 8) | | | 3,000 | | | 3,000 | ||||||
Restricted cash not included in assets held for sale | |
| 807 | |
| 784 | ||||||
Cash, cash equivalents and restricted cash shown in the statement of cash flows |
| $ | 4,500 |
| $ | 5,034 | | $ | 9,287 | | $ | 4,500 |
Funds deposited by the CompanyThe Company’s restricted cash consists of funds held in money market accounts and used as collateral for collateralization of performance obligationsobligation bonds. The funds are not available for the payment of general corporate obligationsexpenses and are not included inexcluded from cash and cash equivalents. Restricted cash consists of money market accounts. The performance obligation bonds are collateralized performance bonds required for future restoration and reclamation obligations related tofor the Company’s South Texas productionuranium properties.
Notes Receivable
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortized cost using the effective interest method less any provision for impairment. Management monitors these assets for credit quality and recoverability on a quarterly basis, including the value of any
9
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
collateral. If the value of the collateral, less selling or recovery costs, exceeds the recorded investment in the asset, no impairment costs would be recorded.
2. LIQUIDITY AND GOING CONCERN
The interim Condensed Consolidated Financial Statements of the Company have been prepared on a “going concern” basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern because it is possible that the Company will be required to adversely change its current business plan or may be unable to meet its obligations as they become due within one year after the date that these financial statements were issued.
The Company last recorded revenues from operations in 2009 and expects to continue to incur losses as a result of costs and expenses related to maintaining its properties and general and administrative expenses.2009. Since 2009, the Company has relied on equity financings, debt financings and asset sales to fund its operations and theoperations. The Company expects to rely on these forms ofdebt and equity financing to fund its operations into the near future. The Company will also continue its cost reduction initiatives to identify ways to reduce its cash expenditures.
The Company’s currentIn 2016, the Company began to incorporate energy-related materials into its business plan. Between 2016 and 2020 the Company obtained mineral leases in Nevada and Utah and evaluated a green-fields exploration program for lithium. In 2018, the Company acquired Alabama Graphite Corp. and its Coosa Graphite Project for the purpose of developing the only commercial sized graphite mineral deposit in the contiguous United States and production of advanced graphite products for use in batteries. In the third quarter of 2020, as further discussed below and as further discussed in Note 8, the Company made the strategic decision to focus most of its resources on its graphite business, agreeing to the sale of its uranium business and discontinuing its investment in its lithium mineral properties.
As of September 30, 2020, execution of the business plan requires workingfor development of the Coosa Graphite Project was underway, with the commissioning of pilot plants for processing flake graphite into battery grade graphite products. The start-up of operations for those plants is expected to commence before the end of 2020 or shortly thereafter. The Company expects the pilot plant phase to last into mid-2021. The Company will use the data generated from the pilot plant operations to inform the requirements and specifications for building a commercial sized graphite processing facility. Pursuant to the Company’s Preliminary Economic Assessment of the Coosa Graphite Project as modified, financing required for the estimated capital expenditures to fund non-discretionaryconstruct the commercial plant is approximately $120 million. Subject to financing, the Company expects the construction phase for the commercial plant to begin in the second half of 2021 and be completed in mid-2022. The Company expects to begin generating revenues from sales of advanced graphite products from the Coosa Graphite Project in 2023.
While executing on its graphite business plan, the Company has continued to fulfill its obligation to restore and reclaim its legacy uranium properties in South Texas. These activities have resulted in expenditures for uraniumof approximately $3.5 million per year, and these reclamation activities are expected to continue for an additional 4-5 years before completion. The Company has provided $9.3 million in performance obligation bonds to the Texas Commission for Environment Quality as financial assurance related to its permits and licenses in South Texas, and has a recorded liability of
8
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
approximately $6.0 million for asset retirement obligations on its balance sheet (see Note 9). In addition to its South Texas uranium operations, the Company has spent about $0.5 million to $1.0 million annually to maintain its uranium mineral property holdingholdings in New Mexico.
In furtherance of the Company’s strategic shift to graphite battery materials, on September 1, 2020 the Company entered into a Letter of Intent (“LOI”) to sell its U.S. uranium business, including its U.S. uranium exploration assets in New Mexico and idled production assets in Texas to enCore Energy Corp. (“enCore”) (see Note 8). The pending sale includes the elimination of the $9.3 million bonding liability, the elimination of the $6.0 million in asset retirement obligations, and the elimination of more than $4.0 million in annual expenditures related to reclamation and compliance costs business development costsat the Company’s Kingsville, Vasquez, and administrativeRosita sites in South Texas and its New Mexico land holding costs. The Company intendsanticipates that it will receive approximately US$2.0 million of enCore common stock and retain royalty interests on the New Mexico uranium properties as consideration for the sale. This transaction is expected to pursue project financingclose on or before December 31, 2020. The Company will retain its uranium interests in Turkey, which are subject to support execution of theongoing international arbitration proceeding. The Company’s strategic shift to focus solely on its graphite business plan, including discretionaryalso resulted in its decision not to renew its lithium mineral leases in Nevada and Utah when the annual rentals of approximately $0.2 million came due in late August 2020.
At September 30, 2020 the Company’s cash balances were $5.5 million. During the month of October 2020, the Company sold 8.5 million shares of common stock for net proceeds of $50.2 million pursuant to its Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co. (“Cantor”) and its Purchase Agreement with Lincoln Park Capital LLC (“Lincoln Park”) (see Note 17). The funding provided by these financing facilities has resulted in a cash balance of approximately $53.3 million at October 31, 2020. Management believes the significant treasury balance has mitigated the Company’s capital expenditures associated withrisk through 2021 as the Company’s 2021 non-discretionary budget, budgeted graphite battery-materialpilot plant program and the remaining budgeted product development construction of pilot plant facilities and construction of commercial production facilities.initiatives are now fully funded. The Company’s current lithium business plan will be funded by working capital; however, the Company is pursuing project financing including possible joint venture partnersto support primary funding of the capital expenditures for construction of the commercial plant set to occur in the second half of 2021.
Management believes the Company’s current cash balance is sufficient to fund discretionary greenfield exploration activities.
At September 30, 2019 the Company’s cash balances were $0.7 million andits planned non-discretionary expenditures through 2022. In addition to pursuing other project financing, the Company had a working capital deficit balanceis evaluating the renewal of $2.6 million. The Company’s cash balance at October 31, 2019 is $2.3 million. Subsequent to October 31, 2019,the Cantor and Lincoln Park financing facilities for use in funding any required contributions by the Company expects to fund operations as follows:
|
|
|
|
|
|
support project financing for construction of the commercial graphite 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 to it in amounts sufficient to meet its needs, or on terms acceptable to the Company. Stock price volatility and uncertain economic conditions caused by the COVID-19 pandemic could significantly impact the Company’s ability to raise funds through equity financing. In the event that wefunds are unablenot available for project financing to raise sufficient additional funds, wecomplete construction of the commercial facility in 2022, the Company will be able to fund its non-discretionary expenditures, however, the Company may be required to delay, reduce or severely curtailchange our operations or otherwise impede our on-goingplanned business efforts, which could have a material adverse effect on our business, operating results, financial condition, long-term prospects and ability to continue as a viable business. Considering all of the factors above, the Company believes there is substantial doubt regarding its ability to continue as a going concern.strategies.
10
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. ACQUISITIONS
Acquisition of Alabama Graphite
On April 23, 2018, the Company completed its acquisition of the outstanding securities of Alabama Graphite Corp. (“Alabama Graphite”) for total consideration of $8.9 million. Alabama Graphite is a Canadian entity that indirectly holds a 100% interest in the Coosa graphite project and Coosa mineral properties located in Alabama. The consideration was comprised of $2.4 million in cash used to fund Alabama Graphite’s operating activities prior to completion of the Alabama Graphite transaction and certain related transaction costs, $6.4 million in common stock of the Company and $89,000 for warrants and options in the Company. Each Alabama Graphite ordinary share was exchanged for 0.0016 common share of WWR. Each warrant and option of Alabama Graphite was also exchanged for warrants and options exercisable for common shares of WWR on the same terms and conditions as were applicable prior to the Alabama Graphite transaction, except that the exercise price was converted for the 0.0016 share exchange ratio and for the USD exchange rate on the agreement date which was $0.77809 (CAD to USD) on December 13, 2017. As a result, the Company issued 232,504 new shares, 7,280 options and 42,888 warrants. The value of the Company’s common stock issued as consideration was based upon the opening share price on April 23, 2018 of $27.50. The operating results of Alabama Graphite are included in the Consolidated Statement of Operations commencing April 23, 2018.
The Alabama Graphite loan from WWR was $1.8 million on April 23, 2018 and was eliminated when incorporated into the final acquisition accounting. Acquisition related costs were $1.9 million, of which $0.6 million was capitalized as additional cash consideration at the acquisition date for certain transaction costs that were directly related to the asset acquisition.
The acquisition of Alabama Graphite was accounted for as an asset acquisition in accordance with ASC 360 as “substantially all” of the purchase consideration was concentrated in a single identifiable asset for graphite mineral interests. WWR controls the Board of Directors and senior management positions of Alabama Graphite and has overall control over the day-to-day activities of the acquired entity.
11
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following summarizes the preliminary allocation of purchase price to the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):
|
|
|
|
Consideration: |
|
|
|
Cash |
| $ | 2,397 |
Issuance of 232,504 common shares for replacement of Alabama Graphite shares |
|
| 6,394 |
Issuance of 7,280 options for replacement of Alabama Graphite options |
|
| 36 |
Issuance of 42,888 warrants for replacement of Alabama Graphite warrants |
|
| 54 |
|
| $ | 8,881 |
|
|
|
|
The fair value of the consideration given was allocated as follows: |
|
|
|
Assets: |
|
|
|
Cash and cash equivalents |
| $ | 17 |
Short-term receivables |
|
| 113 |
Prepaid expenses |
|
| 42 |
Property, plant, equipment and graphite mineral interests |
|
| 8,973 |
Total assets |
|
| 9,145 |
Liabilities: |
|
|
|
Accounts payable and accrued liabilities |
|
| 264 |
Total liabilities |
|
| 264 |
Net assets |
| $ | 8,881 |
The carrying value of the current assets acquired and liabilities assumed approximated the fair value due to the short-term nature of these items. The fair value of the graphite mineral interests was estimated using a discounted cash flow approach and market comparables. Key assumptions used in the discounted cash flow analysis include discount rates, mineral resources, future timing of production, recovery rates and future capital and operating costs.
4. NOTES RECEIVABLE
Laramide Note Receivable
As part of the consideration for the sale of Hydro Resources, Inc. (HRI) in January 2017, the Company received a promissory note in the amount of $5.0 million, secured by a mortgage over the Churchrock and Crownpoint properties owned by Laramide Resources Ltd. (“Laramide”). The note hashad a three-year term and carriescarried an initial interest rate of 5%. The Company received the first two installment payments of $1.5 million each in January 2018 and January 2019. The final principal payment of $2.0 million iswas due and payable on January 5, 2020. Interest iswas payable on a quarterly basis during the final year. Laramide had the right to satisfy up to half of the principal payments by delivering shares of its common stock to the Company, which shares were valued by reference to the volume weighted average price (“VWAP”) for Laramide’s common stock for the 20 trading days before their respective anniversaries of the initial issuance date in
9
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
January. The fair value of this note receivable was determined using the present value of the future cash receipts discounted at a market rate of 9.5%.
On August 30, 2019, the Company sold the promissory note (Note 5)4). Prior to August 30, 2019, the Company had received three tranches of Laramide common shares as partial consideration for the sale, which hashad resulted in the receipt of 2,218,133, 1,982,483 and 2,483,034 Laramide common shares in January 2017, January 2018 and January 2019, respectively. These share payments represented the initial consideration from the January 2017 sale of HRI and two note installments in January 2018 and January 2019. The first note installment in the amount of $1.5 million in January 2018, consisted of $750,000 in cash and the issuance of 1,982,483 of Laramide’s common shares. The second note installment
12
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
in the amount of $1.5 million in January 2019, consisted of $750,000 in cash and the issuance of 2,483,034 of Laramide’s common shares. Additionally, Laramide made interest payments in the amount of $96,022 in cash during the nine monthsyear ending September 30,December 31, 2019.
During the nine months ended September 30,On March 25, 2019, the Company sold the third tranche of 2,483,034 Laramide common shares and 2,218,133 Laramide warrants resulting in net proceeds of $0.5 million and a net loss on sale of marketable securities of $0.7 million.
The following tables show the notes receivable, accrued interest and unamortized discount on the Company’s notes receivable as of September 30, 2019 and December 31, 2018.
| ||||||||||||
| ||||||||||||
|
| |||||||||||
|
|
|
| |||||||||
|
|
|
|
| ||||||||
| ||||||||||||
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
| ||||
| ||||||||||||
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | ||||||||||
|
|
|
|
|
|
|
| Less |
|
|
| |
|
|
|
|
|
|
|
| Unamortized |
| Note Balance | ||
|
| Note |
| Plus Accrued |
| Note |
| per Balance | ||||
(thousands of dollars) |
| Amount |
| Interest |
| Discount |
| Sheet | ||||
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable Laramide – current |
| $ | 1,500 |
| $ | 45 |
| $ | — |
| $ | 1,545 |
Subtotal Notes Receivable – current |
| $ | 1,500 |
| $ | 45 |
| $ | — |
| $ | 1,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable – Laramide – non-current |
| $ | 2,000 |
| $ | — |
| $ | (507) |
| $ | 1,493 |
Total Notes Receivable – current and non-current |
| $ | 3,500 |
| $ | 45 |
| $ | (507) |
| $ | 3,038 |
5.4. SALE OF URANIUM ASSETS
On March 5, 2019, the Company entered into an Asset Purchase Agreement with Uranium Royalty (USA) Corp. and Uranium Royalty Corp. (together “URC”) for the sale of four of its royalty interests on future uranium production from mineral properties located in South Dakota, Wyoming and New Mexico, as well as the remaining amount of the Laramide promissory note in the amount of $2.0 million as discussed in Note 3 above, for $2.75 million, including $0.5$0.5 million paid at signing. On June 28, 2019, Westwater and URC entered into an Amendment to the Agreement (collectively referred to as the "Agreement").Asset Purchase Agreement. The Amendment extended the date for closing from July 31, 2019 to August 30, 2019. URC delivered an additional $1.0 million as deposit to the Company upon signing the Amendment. The transaction closed on August 30,
13
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2019 at which time the Company transferred ownership of the royalties and promissory note in exchange for the final payment of $1.25 million.
The sale of these uranium assets was accounted for as an asset disposal. The Company recorded the followinga net gain of $0.7 million on disposal of uranium assets on its Condensed Consolidated Statements of Operations:Operations for the nine months ended September 30, 2019. At September 30, 2020, the gain has been reclassified to discontinued operations, which are reported as a separate component of Net Income/Loss for the prior periods on the Statement of Operations (see Note 8).
|
|
|
| |||
| | | | |||
URC Transaction |
|
|
|
| | |
(thousands of dollars) |
|
|
| | | |
Total cash consideration received, net of transaction costs |
| $ | 2,470 | | $ | 2,470 |
Carrying value of promissory note |
|
| (1,741) | | | (1,741) |
Carrying value of royalty interests |
|
| — | | | — |
Gain on disposal of uranium assets |
| $ | 729 | | $ | 729 |
A discussion on the Company’s current efforts to sell its remaining U.S. uranium business, including its uranium exploration assets in New Mexico and idled production assets in Texas to enCore Energy (see Note 8).
6.
5. FINANCIAL INSTRUMENTS
Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes
10
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
a fair-value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):
| Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that are observable at the measurement date. |
| Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). |
| Level 3 includes unobservable inputs that reflect management’s assumptions about what factors market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including internal data. |
The Company believes that the fair value of its assets and liabilities approximateapproximates their reported carrying amounts. The following table presents information about assets that were recorded at fair value on a recurring and non-recurring basis as of September 30, 20192020 and December 31, 20182019 and indicateindicates the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| September 30, 2019 | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | September 30, 2020 | ||||||||||||||||||||||
(thousands of dollars) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
Short-term available-for-sale investments |
| $ | — |
| $ | — |
| $ | — |
| $ | — | ||||||||||||
Restricted cash included in assets held for sale | | | 3,000 | | | — | | | — | | | 3,000 | ||||||||||||
Total current assets recorded at fair value |
| $ | — |
| $ | — |
| $ | — |
| $ | — | | $ | 3,000 | | $ | — | | $ | — | | $ | 3,000 |
Non-current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
Restricted cash |
| $ | 3,784 |
| $ | — |
|
| — |
| $ | 3,784 | ||||||||||||
Restricted cash not included in assets held for sale | | $ | 807 | | $ | — | | $ | — | | $ | 807 | ||||||||||||
Total non-current assets recorded at fair value |
| $ | 3,784 |
| $ | — |
| $ | — |
| $ | 3,784 | | $ | 807 | | $ | — | | $ | — | | $ | 807 |
14
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 |
|
| ||||||||
(thousands of dollars) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term available-for-sale investments |
| $ | 415 |
| $ | — |
| $ | — |
| $ | 415 |
Total current assets recorded at fair value |
| $ | 415 |
| $ | — |
| $ | — |
| $ | 415 |
Non-current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
| $ | 3,732 |
| $ | — |
|
| — |
| $ | 3,732 |
Total non-current assets recorded at fair value |
| $ | 3,732 |
| $ | — |
| $ | — |
| $ | 3,732 |
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
(thousands of dollars) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Non-current Assets | |
|
| |
|
| |
|
| |
|
|
Restricted cash included in assets held for sale | | $ | 3,000 | | $ | — | | $ | — | | $ | 3,000 |
Restricted cash not included in assets held for sale | | | 797 | | | — | | | — | | | 797 |
Total non-current assets recorded at fair value | | $ | 3,797 | | $ | — | | $ | — | | $ | 3,797 |
Assets that are measured on a recurring basis include the Company’s marketable securities and restricted cash.
7.6. PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Net Book Value of Property, Plant and Equipment at September 30, 2019 | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
| | Net Book Value of Property, Plant and Equipment at September 30, 2020 | ||||||||||||||||||||||||||||||||
(thousands of dollars) |
| Turkey |
| Texas |
| Alabama |
| New Mexico |
| Corporate |
| Total |
| Texas |
| Alabama |
| New Mexico | | Corporate |
| Total | ||||||||||||
Uranium plant |
| $ | — |
| $ | 3,142 |
| $ | — |
| $ | — |
| $ | — |
| $ | 3,142 | | | $ | 1,855 | | $ | 0 | | $ | - | | $ | - | | $ | 1,855 |
Mineral rights and properties |
|
| — |
|
| — |
|
| 8,972 |
|
| 7,806 |
|
| — |
|
| 16,778 | | |
| - | | | 8,972 | |
| 3,900 | | | - | | | 12,872 |
Other property, plant and equipment |
|
| 6 |
|
| 429 |
|
| — |
|
| — |
|
| 126 |
|
| 561 | | |
| 452 | |
| - | |
| - | |
| 24 | |
| 476 |
Total |
| $ | 6 |
| $ | 3,571 |
| $ | 8,972 |
| $ | 7,806 |
| $ | 126 |
| $ | 20,481 | ||||||||||||||||
Total Property, Plant and Equipment | | | $ | 2,307 | | $ | 8,972 | | $ | 3,900 | | $ | 24 | | $ | 15,203 | ||||||||||||||||||
Property, Plant and Equipment included in assets held for sale | | | | 2,307 | | | - | | | 3,900 | | | - | | | 6,207 | ||||||||||||||||||
Property, Plant and Equipment from Continuing Operations | | | $ | - | | $ | 8,972 | | $ | - | | $ | 24 | | $ | 8,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Book Value of Property, Plant and Equipment at December 31, 2018 | ||||||||||||||||
(thousands of dollars) |
| Turkey |
| Texas |
| Alabama |
| New Mexico |
| Corporate |
| Total | ||||||
Uranium plant |
| $ | — |
| $ | 3,256 |
| $ | — |
| $ | — |
| $ | — |
| $ | 3,256 |
Mineral rights and properties |
|
| — |
|
| — |
|
| 8,973 |
|
| 7,806 |
|
| — |
|
| 16,779 |
Other property, plant and equipment |
|
| 8 |
|
| 348 |
|
| — |
|
| — |
|
| 162 |
|
| 518 |
Total |
| $ | 8 |
| $ | 3,604 |
| $ | 8,973 |
| $ | 7,806 |
| $ | 162 |
| $ | 20,553 |
11
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| | | | | | | | | | | | | | | | |
| | | Net Book Value of Property, Plant and Equipment at December 31, 2019 | |||||||||||||
(thousands of dollars) |
|
| Texas |
| Alabama |
| New Mexico | | Corporate |
| Total | |||||
Uranium plant | | | $ | 3,112 | | $ | - | | $ | - | | $ | - | | $ | 3,112 |
Mineral rights and properties | | |
| - | | | 8,972 | |
| 7,806 | | | - | | | 16,778 |
Other property, plant and equipment | | |
| 424 | |
| - | |
| - | |
| 23 | |
| 447 |
Total Property, Plant and Equipment | | | $ | 3,536 | | $ | 8,972 | | $ | 7,806 | | $ | 23 | | $ | 20,337 |
Property, Plant and Equipment included in assets held for sale | | | | 3,536 | | | - | | | 7,806 | | | - | | | 11,342 |
Property, Plant and Equipment from Continuing Operations | | | $ | - | | $ | 8,972 | | $ | - | | $ | 23 | | $ | 8,995 |
Included in the Property, Plant and Equipment tables above are the long-lived assets related to the Company’s uranium business, which are reported in discontinued operations (see Note 8).
Impairment of TemrezliProperty, Plant and Sefaatli ProjectsEquipment
On June 20, 2018, the General Directorate of Mining Affairs, a department of the Turkish Ministry of Energy and Natural Resources, notified the Company that the mining and exploration licenses for its Temrezli and Sefaatli projects located in Turkey had been revoked and potential compensation will be proffered. On December 13, 2018, the Company filed a Request for Arbitration against the Republic of Turkey before the International Centre for the Settlement of Investment Disputes, pursuant to the Treaty between the United States of America and the Republic of Turkey concerning the Reciprocal Encouragement and Protection of Investments. Although the Company is seeking compensation for its investment in the Temrezli and Sefaatli projects through the international arbitration process, it is more likely than not that the Company will be unable to explore, develop, mine or otherwise benefit from the mineral properties. Therefore, the Company has determined that all of the uranium mineral holding property assets located in Turkey were fully impaired. The Company will recognize compensation for the mining and exploration licenses when the amount of the full and fair compensation is fixed and determinable and the ability to collect is probable. See further discussion of the international arbitration process at Item 2 - Management Discussion and Analysis and Part II. Item 1- Legal Proceedings sections of this form 10-Q.
The Company reviews and evaluates its long-lived assets for impairment on an annual basis or more frequently when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. As discussed in Note 8, the Company has entered into a binding LOI to sell its uranium business. The proposed terms of the transaction are an indicator of impairment of the Company’s long-lived uranium property, plant and equipment. For purposes of determining the amount of impairment, the Company has estimated that a loss in the amount of $5.2 million will be recorded upon closing of the proposed transaction using the September 30, 2020 carrying values of the uranium assets and liabilities included in the transaction plus estimated costs to close the transaction.
As discussed in Note 8, at September 30, 2020, property, plant and equipment related to the Company’s U.S. uranium business in Texas and New Mexico, net of the $5.2 million impairment charge, have been reclassified to Held for Sale on the Condensed Consolidated Balance Sheet. Balances for prior year periods have also been reclassified. The $5.2 million impairment charge is included in discontinued operations on the Condensed Consolidated Statement of Operations for the period ended September 30, 2020.
1512
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
8.7. MINERAL PROPERTY EXPENDITURES
Mineral property expenditures by geographical location for the three and nine months ended September 30, 20192020 and 20182019 are as follows:
| | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| | (thousands of dollars) | ||||||||||
Kingsville Dome project, Texas | | $ | 291 | | $ | 203 | | $ | 735 | | $ | 592 |
Rosita project, Texas | |
| 158 | |
| 237 | |
| 371 | |
| 455 |
Vasquez project, Texas | | | 95 | |
| 85 | |
| 456 | |
| 397 |
Other projects, Texas | |
| 17 | |
| 5 | |
| 20 | |
| (4) |
Total Texas projects | |
| 561 | |
| 530 | |
| 1,582 | |
| 1,440 |
| | | | | | | | | | | | |
Cebolleta project, New Mexico | | | 150 | | | — | | | 291 | | | 440 |
Juan Tafoya project, New Mexico | | | 41 | | | 40 | | | 50 | | | 49 |
West Largo | | | — | | | 13 | | | — | | | 13 |
Total New Mexico projects | | | 191 | | | 53 | | | 341 | | | 502 |
| | | | | | | | | | | | |
Columbus Basin project, Nevada | | | — | | | 126 | | | — | | | 127 |
Other projects, Nevada | | | — | | | — | | | — | | | — |
Total Nevada projects | | | — | | | 126 | | | — | | | 127 |
| | | | | | | | | | | | |
Sal Rica project, Utah | | | — | | | 111 | | | 1 | | | 112 |
Total Utah projects | | | — | | | 111 | | | 1 | | | 112 |
| | | | | | | | | | | | |
Coosa project, Alabama | | | 12 | | | 12 | | | 18 | | | 77 |
Bama project, Alabama | | | — | | | — | | | — | | | — |
Total Alabama projects | |
| 12 | |
| 12 | |
| 18 | |
| 77 |
| | | | | | | | | | | | |
Total expense for the period | | $ | 764 | | $ | 832 | | $ | 1,942 | | $ | 2,258 |
(Less) Mineral Property expenses attributable to Discontinued Operations | | | (752) | | | (820) | | | (1,924) | | | (2,181) |
Mineral Property expenses for Continued Operations | | $ | 12 | | $ | 12 | | $ | 18 | | $ | 77 |
| | | | | | | | | | | | |
Included in the table above are mineral property expenses related to the Company’s discontinued U.S. uranium and lithium operations (see Note 8). For the nine months ended September 30, 2020 and 2019, $1.9 million was spent on mineral property expenses for the Company’s uranium properties in Texas and New Mexico. Expenditures included land-holding and maintenance, reclamation activities and standby costs. The Company also spent $0.2 million during the third quarter of 2019 for claim maintenance, permits and fees on its lithium holdings in Utah and Nevada acquired in 2016. These costs are included in the net loss from discontinued operations on the Condensed Consolidated Statements of Operations.
8. DISCONTINUED OPERATIONS
In the third quarter of 2020, the Company made the strategic decision to focus most of its resources on its graphite business, agreeing to the sale of its uranium business as further discussed below, and discontinuing its investment in its lithium business. The Company’s lithium business included mineral leases and water rights in Nevada and Utah. The Company elected not to renew the annual lease rentals on the mineral properties, which also voids the water rights.
On September 1, 2020, the Company signed a binding LOI to sell its U.S. uranium assets located in New Mexico and Texas to enCore Energy Corp., a corporation incorporated under the laws of British Columbia, Canada. The proposed transaction with enCore will be structured as a direct share purchase in which enCore acquires all issued and outstanding
13
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
equity securities of Westwater’s wholly-owned uranium subsidiaries, URI Inc., Neutron Energy Inc., and Uranco, Inc., as well as related subsidiaries, HRI-Churchrock, Inc., Hydro Restoration Corp., Belt Line Resources, Inc., and Uranium Resources, Inc. (f/k/a URI Minerals, Inc.). Westwater expects to receive enCore shares valued at approximately $2.0 million and retain royalties from future production from the New Mexico uranium properties. As part of the proposed transaction, enCore will receive $3.0 million of cash collateral currently pledged against reclamation performance obligation bonds totaling approximately $9.3 million upon the successful replacement of those performance obligation bonds. EnCore will also assume other liabilities related to the uranium properties including asset retirement obligations and outstanding royalties payable.
The sale is expected to close on or before December 31, 2020. The Company considers assets to be held for sale when management approves and commits to a formal plan to actively market the assets for sale at a price reasonable in relation to fair value, the asset is available for immediate sale in its present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the asset is expected to be completed within one year and it is unlikely that significant changes will be made to the plan. Management has concluded that the sale of its U.S. uranium assets to enCore meets these criteria. As a result, the assets and liabilities in the disposal group are classified as held for sale for all periods presented on the Condensed Consolidated Balance Sheet as of September 30, 2020. This divestiture will allow the Company to devote most of its available resources to the development of high-performance battery graphite. This transaction represents a major strategic shift for Westwater and is expected to significantly affect current and future operations and financial results. Due to this shift, the Company’s uranium segment has been classified as a discontinued operation and is reported separately from continuing operations on the Condensed Consolidated Statement of Operations for all periods presented.
The carrying amounts of the major classes of assets and liabilities related to the Company’s discontinued uranium and lithium operations and classified as held for sale as of September 30, 2020 and December 31, 2019 were as follows:
14
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| | | | | |
| September 30, |
| December 31, | ||
| 2020 | | 2019 | ||
(thousands of dollars) | |
|
| |
|
Restricted Cash | $ | 3,000 |
| $ | — |
Prepaid and other current assets |
| 89 |
|
| 151 |
Net property, plant and equipment | | 6,207 | | | — |
Operating lease right-of-use assets | | 10 | | | — |
Current Assets Held for Sale |
| 9,306 |
|
| 151 |
| | | | | |
Net property, plant and equipment |
| — |
|
| 11,342 |
Operating lease right-of-use assets |
| — |
|
| 14 |
Restricted cash |
| — |
|
| 3,000 |
Assets Held for Sale, non-current | | — |
| | 14,356 |
| | | | | |
Total Assets Held for Sale | $ | 9,306 | | $ | 14,507 |
|
|
|
|
|
|
Accounts payable | $ | 140 |
| $ | 25 |
Accrued liabilities |
| 808 |
|
| 776 |
Asset retirement obligations - current |
| 5,969 |
|
| 894 |
Operating lease liability - current |
| 10 |
|
| 6 |
Notes payable - current | | 331 | | | — |
Other current liabilities | | 500 | | | — |
Current Liabilities Held for Sale |
| 7,758 |
|
| 1,701 |
| | | | | |
Asset retirement obligations, net of current |
| — |
|
| 5,406 |
Operating lease liability, net of current |
| — |
|
| 8 |
Other long-term liabilities |
| — |
|
| 500 |
Liabilities Held for Sale, non-current |
| — |
|
| 5,914 |
| | | | | |
Total Liabilities Held for Sale | $ | 7,758 | | $ | 7,615 |
The results of the Company’s uranium and lithium business segments included in discontinued operations for the three and nine months ended September 30, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
|
| (thousands of dollars) | ||||||||||
Temrezli project, Turkey |
| $ | — |
| $ | 11 |
| $ | — |
| $ | 107 |
Total Turkey projects |
|
| — |
|
| 11 |
|
| — |
|
| 107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Kingsville Dome project, Texas |
|
| 203 |
|
| 223 |
|
| 592 |
|
| 646 |
Rosita project, Texas |
|
| 237 |
|
| 259 |
|
| 454 |
|
| 614 |
Vasquez project, Texas |
|
| 85 |
|
| 42 |
|
| 397 |
|
| 373 |
Other projects, Texas |
|
| 5 |
|
| 14 |
|
| (3) |
|
| 14 |
Total Texas projects |
|
| 530 |
|
| 538 |
|
| 1,440 |
|
| 1,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cebolleta project, New Mexico |
|
| — |
|
| — |
|
| 440 |
|
| 389 |
Juan Tafoya project, New Mexico |
|
| 40 |
|
| 39 |
|
| 49 |
|
| 48 |
Other projects, New Mexico |
|
| 13 |
|
| 12 |
|
| 13 |
|
| 12 |
Total New Mexico projects |
|
| 53 |
|
| 51 |
|
| 502 |
|
| 449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbus Basin project, Nevada |
|
| 126 |
|
| 126 |
|
| 127 |
|
| 249 |
Railroad Valley, Nevada |
|
| — |
|
| 79 |
|
| — |
|
| 95 |
Total Nevada projects |
|
| 126 |
|
| 205 |
|
| 127 |
|
| 344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sal Rica project, Utah |
|
| 111 |
|
| 112 |
|
| 112 |
|
| 112 |
Total Utah projects |
|
| 111 |
|
| 112 |
|
| 112 |
|
| 112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Coosa project, Alabama |
|
| 31 |
|
| 38 |
|
| 128 |
|
| 47 |
Total Alabama projects |
|
| 31 |
|
| 38 |
|
| 128 |
|
| 47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense for the period |
| $ | 851 |
| $ | 955 |
| $ | 2,309 |
| $ | 2,706 |
| | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(thousands of dollars) |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
Mineral property expenses |
| $ | (752) |
| $ | (820) | | $ | (1,924) |
| $ | (2,181) | |
General and administrative expenses |
|
| (405) |
|
| (356) | |
| (1,273) |
|
| (1,181) | |
Accretion of asset retirement obligations |
|
| (32) |
|
| (197) | |
| (170) |
|
| (353) | |
Depreciation and amortization |
|
| (30) |
|
| (20) | |
| (36) |
|
| (66) | |
Impairment of uranium properties | | | (5,200) | | | — | | | (5,200) | | | — | |
Gain on disposal of uranium assets | | | — | | | 729 | | | — | | | 729 | |
Other income (expense) |
|
| 30 |
|
| — | |
| 30 |
|
| — | |
Net Loss from Discontinued Operations |
| $ | (6,389) |
| $ | (664) | | $ | (8,573) |
| $ | (3,052) | |
Our cash flow information for 2020 and 2019 included the following activities related to discontinued operations:
15
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended | ||||||
| September 30, | | September 30, | ||||||
| | 2020 | | 2019 |
| | 2020 | | 2019 |
(thousands of dollars) | | | | | | | | | |
Depreciation and amortization | $ | 30 | $ | 20 | | $ | 36 | $ | 66 |
Capital Expenditures | | - | | - | | | (101) | | - |
Accretion of asset retirement obligations | | 32 | | 197 | | | 170 | | 353 |
Impairment of uranium properties | | 5,200 | | - | | | 5,200 | | - |
9. ASSET RETIREMENT OBLIGATIONS (“ARO”)
The following table summarizes the changes in the reserve for future restoration and reclamation costs on the balance sheet:
|
|
|
|
|
|
| ||||||
|
| September 30, |
| December 31, | ||||||||
| | | | | | | ||||||
|
| September 30, |
| December 31, | ||||||||
(thousands of dollars) |
| 2019 |
| 2018 | | 2020 | | 2019 | ||||
Balance, beginning of period |
| $ | 6,203 |
| $ | 5,731 | | $ | 6,300 | | $ | 6,203 |
Liabilities settled |
|
| (334) |
|
| (521) | |
| (501) | |
| (293) |
Accretion expense |
|
| 353 |
|
| 993 | |
| 170 | |
| 390 |
Balance, end of period |
|
| 6,222 |
|
| 6,203 | |
| 5,969 | |
| 6,300 |
Less: Current portion |
|
| (895) |
|
| (708) | ||||||
Non-current portion |
| $ | 5,327 |
| $ | 5,495 | ||||||
Less: ARO included in current liabilities held for sale | | | (5,969) | | | (894) | ||||||
ARO included in liabilities held for sale, non-current | | $ | — | | $ | 5,406 |
16
TableAsset retirement obligations primarily consist of Contents
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
estimated reclamation costs for the Company’s ISR projects in South Texas. These obligations are fully secured by performance obligation bonds totaling approximately $9.3 million and partially collateralized by $3.8 million in restricted cash. In early September 2020, Westwater entered into an agreement with enCore Energy Corp to sell its U.S. uranium assets, including those properties in Texas that are subject to the restoration obligations above (see Note 8). These assets and related liabilities were classified as held for sale during the current period and are reported on the Company’s Condensed Consolidated Balance Sheet. The sale is expected to close by year-end 2020, at which time all bonding obligations and nearly $6.0 million in reclamation liabilities will be transferred to enCore. Until the transaction closes, the Company is currently performingwill continue to perform plugging and surface reclamation activities at its Rosita and Vasquez projects located in Duval County, Texas. The Company’s current liability of $0.9 million consists of the estimated costs associated with current reclamation activities through September 2020 at the Company’s Rosita and Vasquez projects.
10. COMMON STOCK
Reverse Stock Split
Immediately following the close of trading on April 22, 2019, the Company effected a one-for-fifty reverse stock split of its common stock. With the reverse stock split, every fifty shares of the Company’s issued and outstanding common stock were combined into one issued and outstanding share of common stock. The reverse stock split reduced the number of shares outstanding from approximately 74.7 million shares to approximately 1.5 million shares. The reverse stock split did not have any effect on the par value of the Company’s common stock. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would have resulted were settled in cash. All share data herein has been retroactively adjusted for the reverse stock split.
Common Stock Issued, Net of Issuance Costs
Stock2020 Purchase Agreement with Lincoln Park Capital Fund, LLC. ("
On May 21, 2020, the Company entered into a Purchase Agreement with Lincoln Park"Park, as amended on May 29, 2020 (the “2020 Purchase Agreement”), to place up to $12.0 million in the aggregate of the Company’s common stock on an ongoing basis when required by the Company over a term of 24 months. At the Annual Shareholders Meeting conducted on April 28, 2020, the Company received shareholder approval to sell up to 8.0 million shares of common stock under the 2020 Purchase Agreement. As an initial purchase on May 21, 2020, Lincoln Park bought $250,000 worth of Common Stock of the Company at a price of $1.2989 per share. The Company issued 156,250 shares of Common Stock to Lincoln Park as consideration for its commitment to purchase shares of Common Stock under the 2020 Purchase Agreement.
On May 21, 2020, the Company entered into a registration rights agreement with Lincoln Park pursuant to which the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission, which was declared effective on June 26, 2020 relating to the resale of an initial tranche of 1.97 million shares subject to the 2020 Purchase Agreement. As of September 30, 2020, the Company had sold 1.8 shares of common stock for gross proceeds of
16
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
$3.8 million, of which 1.6 million shares of common stock and gross proceeds of $3.5 million was sold in the three months ended September 30, 2020. The Company filed a second registration statement on Form S-1 relating to the resale of 3.2 million shares which was declared effective on October 2, 2020, and sold 1.1 million shares for gross proceeds of $8.2 million in October 2020. With the October 2020 sales, the $12.0 million sales capacity of the 2020 Purchase Agreement has been reached.
2019 Purchase Agreement (“2019 Purchase Agreement”) with Lincoln Park
On June 6, 2019, the Company entered into the 2019 Purchase Agreement with Lincoln Park to place up to $10.0 million in the aggregate of the Company’s common stock on an ongoing basis when required by the Company over a term of 24 months. On August 6, 2019 the Company conducted a Special Meeting of Shareholders whereby the Company received such approval to sell up to 3.2 million shares of common stock under the 2019 Purchase Agreement. Following effectiveness of a registration statement on Form S-1 relating to the resale of the shares subject to the 2019 Purchase Agreement on June 18, 2019, the Company began selling shares of its common stock to Lincoln Park under the terms of the 2019 Purchase Agreement. On September 11, 2019, October 28, 2019 and February 28, 2020 the Company filed subsequent registration statements on Form S-1, which were declared effective on September 20, 2019, November 7, 2019 and March 6, 2020, respectively, registering for resale additional shares under the 2019 Purchase Agreement. During the quarter ended June 30, 2020 the Company sold 623,236 shares of common stock for gross proceeds of $593,356. The 2019 Purchase Agreement was terminated in May 2020 with historical sales of 3.2 million shares of common stock for gross proceeds of $7.7 million.
Securities Purchase Agreement with Lincoln Park
On May 24, 2019, Westwater entered into a securities purchase agreement,Securities Purchase Agreement, as amended by Amendment No. 1 thereto dated as of May 30, 2019, (as so amended, the "Purchase Agreement"), with Lincoln Park, pursuant to which the Company agreed to issue and sell to Lincoln Park, and Lincoln Park agreed to purchase from the Company (i) 104,294 shares of the Company's common stock and (ii) warrants to initially purchase an aggregate of up to 182,515 shares of common stock, at an exercise price of $5.062 per share, for an aggregate of $550,751.share. On May 30, 2019, the Company issued and sold the common shares and the warrants to Lincoln Park and received aggregate gross proceeds before expenses of $550,751. The warrants will becomebecame exercisable upon the six-month anniversary of the Closing Date and thereafter at any time during the five-year period following such date.
Purchase Agreement ("PA") with Lincoln Park
On June 6, 2019, the Company entered into the PA with Lincoln Park to place up to $10.0 million in the aggregate of the Company's common stock on an ongoing basis when required by the Company over a term of 24 months. Westwater will control the timing and amount of any sales to Lincoln Park, and Lincoln Park is obligated to make purchases in accordance with the PA. Any common stock that is sold to Lincoln Park will occur at a purchase price that is based on an agreed upon fixed discount to the Company's prevailing market prices at the time of each sale and with no upper limits to the price Lincoln Park may pay to purchase common stock. The agreement may be terminated by Westwater at any time, in its sole discretion, without any additional cost or penalty.
The PA specifically provides that the Company may not issue or sell any shares of its common stock under the PA if such issuance or sale would breach any applicable rules of The Nasdaq Capital Market. In particular, Nasdaq Listing Rule 5635(d) provides that the Company may not issue or sell more than 19.99% of the shares of the Company’s common stock outstanding immediately prior to the execution of the PA without shareholder approval. On August 6, 2019 the Company conducted a Special Meeting of Shareholders whereby the Company received such approval to sell up to 3,200,000 shares of common stock under the PA..
Lincoln Park has no right to require the Company to sell any shares of common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to certain conditions. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the PA if it would result in Lincoln Park beneficially owning more than 9.99% of its common stock.
17
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Following effectiveness of an S-1 registration statement relating to the resale of the shares subject to the PA on June 18, 2019, the Company began selling shares of its common stock to Lincoln Park under the terms of the PA. During the quarter ended SeptemberNovember 30, 2019 the Company sold 466,784 shares of common stock for gross proceeds of $1.5 million. Inception-to-date throughand were exercised on October 31, 2019, the Company has sold 1,234,534 shares of common stock for gross proceeds of $4.8 million. As of November 6, 2019, the Company has registered the resale by Lincoln Park of an additional 959,000 shares under a registration statement on Form S-1 which will be declared effective on November 7, 2019.2020.
Controlled EquityATM Offering Sales Agreement with Cantor Fitzgerald (“Cantor”)
On April 14, 2017, the Company entered into the at-the-market offeringa Controlled Equity Offering Sales Agreement (the "ATM Offering"“ATM Offering Agreement”) with Cantor acting as sales agent. Under the ATM Offering Agreement, the Company may from time to time sell shares of its common stock having an aggregate offering amount up to $30.0 million in “at-the-market” offerings, $8.0 million of which shares were registered for sale under a registration statement on Form S‑3, which was declared effective on March 9, 2017.offerings. The Company pays Cantor a commission of up to 2.5% of the gross proceeds from the sale of any shares pursuant to the ATM Offering.Offering Agreement. As of September 30, 2019,2020, the Company had sold 488,6854.1 million shares of common stock for net proceeds of $6.1$13.9 million under the ATM Offering Agreement, of which 57,2052.1 million shares of common stock andfor net proceeds of $0.4$3.7 million waswere sold in the ninethree months ended September 30, 2019. As a result,2020. During the month of October 2020, the Company had approximately $23.8registered and sold 7.3 million remaining availableshares of common stock for future salesnet proceeds of $42.0 million under the ATM Offering but has nil registered for sale asAgreement. As of September 30, 2019.
Common Stock Issued for Acquisition of Alabama Graphite
As discussed in Note 3 above, on April 23, 2018,November 12, 2020, the Company issued 232,504has no shares of common stock in exchangeregistered for 100%sale under the ATM Offering Agreement.
Warrants
The following table summarizes warrants outstanding and changes for the three-month periods ending September 30, 2020 and 2019:
17
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| | | | |
| | September 30, 2020 | | September 30, 2019 |
|
| |
| |
| | Number of | | Number of |
| | Warrants | | Warrants |
Warrants outstanding at beginning of period |
| 186,182 |
| 197,621 |
Issued |
| — |
| — |
Expired |
| — |
| — |
Warrants outstanding at end of period | | 186,182 |
| 197,621 |
| | | | |
On October 6, 2020, Lincoln Park provided notice of its exercise of 182,515 warrants. Lincoln Park elected the cashless exercise method to convert the warrants to shares of common stock. Based on the cashless exercise formula, the Company issued Lincoln Park 118,799 shares of common stock. |
11. STOCK-BASED COMPENSATION
Stock-based compensation awards consist of stock options, restricted stock units and bonus shares issued under the Company’s equity incentive plans which include: the 2013 Omnibus Incentive Plan (the “2013 Plan"Plan”) and the Amended and Restated 2004 Directors’ Stock Option and Restricted Stock Plan (the “2004 Directors’ Plan"Plan”). Upon approval of the 2013 Plan by the Company’s stockholders on June 4, 2013, the Company’s authority to grant new awards under all plans other than the 2013 Plan was terminated. On July 18, 2017, and April 18, 2019 and April 28, 2020, the Company’s stockholders approved amendments to the 2013 Plan to increase the authorized number of shares of common stock available and reserved for issuance under the 2013 Plan by 20,000 shares, 66,000 and 66,000350,000 shares, respectively and in 2017 re-approvere-approved the material terms of the performance goals under the plan. Under the 2013 Plan, the Company may grant awards of stock options, stock appreciation rights, restricted stock awards, (“RSAs”), restricted stock units (“RSUs”), unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards and cash bonus awards to eligible persons. The maximum number of the Company’s common stock that may be reserved for issuance under the 2013 Plan is currently 66,278416,278 shares of common stock, plus unissued shares under the prior plans. Equity awards under the 2013 Plan are granted from time to time at the discretion of the Compensation Committee of the Board (the “Committee”“Committee��), with vesting periods and other terms as determined by the Committee with a maximum term of 10 years. The 2013 Plan is administered by the Committee, which can delegate the administration to the Board, other Committees or to such other officers and employees of the Company as designated by the Committee and permitted by the 2013 Plan.
As of September 30, 2019, 45,8862020, 58,586 shares were available for future issuances under the 2013 Plan. For the nine months ending September 30, 20192020 and 2018,2019, the Company recorded stock-based compensation expense of $0.2 million$169,700 and $0.3 million,$255,000, respectively. Stock compensation expense is recorded in general and administrative expenses.
In addition to the plans above, upon closing of the Company’s acquisition of Anatolia Energy Limited in November 2015, the Company issued 7,495 replacement options and performance shares to the option holders and
18
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
performance shareholders of Anatolia Energy Limited. The number of replacement options and performance shares was based upon the Black-Scholes value with the exercise prices of the replacement options and performance shares determined using the exchange rate of 0.0001096. The options and performance shares were issued with the same terms and conditions as were applicable prior to the acquisition of Anatolia Energy Limited. As of September 30, 2019, there were 113 replacement options outstanding and no performance shares outstanding.
In addition to the plans above, upon closing of the Company’s acquisition of Alabama Graphite in April 2018, the Company issued 50,168 replacement options and warrants to the option and warrant holders of Alabama Graphite. The number of replacement options and warrants shares was determined using the arrangement exchange rate of 0.0016. The exercise prices for the option and warrant shares were first converted for the exchange rate of 0.0016 and then converted to USD using the exchange rate on December 13, 2017 of 0.77809 (CAD to USD). The options and warrant shares were issued with the same terms and conditions as were applicable prior to the acquisition of Alabama Graphite. As of September 30, 2019,2020, there were 4,5282,840 replacement options and 11,440outstanding but all replacement warrants outstanding.have expired.
18
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Stock Options
The following table summarizestables summarize stock options outstanding and changes for the three-monththree and nine-month periods ending September 30, 20192020 and 2018:2019:
| | | | | | | | | | |
| | Three months ended | | Three months ended | ||||||
| | September 30, 2020 | | September 30, 2019 | ||||||
|
| |
| Weighted |
| |
| Weighted | ||
| | Number of | | Average | | Number of | | Average | ||
| | Stock | | Exercise | | Stock | | Exercise | ||
| | Options | | Price | | Options | | Price | ||
Stock options outstanding at beginning of period |
| 161,897 | | $ | 9.25 |
| 18,546 | | $ | 64.49 |
Granted |
| — | |
| — |
| 20,942 | |
| 19.25 |
Expired |
| — | |
| — |
| (1,040) | |
| 78.00 |
Canceled or forfeited | | — | | | — | | (550) | | | 19.25 |
Stock options outstanding at end of period |
| 161,897 | | $ | 9.25 |
| 37,898 | | $ | 39.78 |
Stock options exercisable at end of period |
| 36,093 | | $ | 34.41 |
| 37,898 | | $ | 39.78 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| September 30, 2019 |
| September 30, 2018 | ||||||||||||||||
|
|
|
| Weighted |
|
|
| Weighted | ||||||||||||
|
| Number of |
| Average |
| Number of |
| Average | ||||||||||||
|
| Stock |
| Exercise |
| Stock |
| Exercise | ||||||||||||
|
| Options |
| Price |
| Options |
| Price | ||||||||||||
| | | | | | | | | | | ||||||||||
| | Nine months ended | | Nine months ended | ||||||||||||||||
| | September 30, 2020 | | September 30, 2019 | ||||||||||||||||
|
| |
| Weighted |
| |
| Weighted | ||||||||||||
| | Number of | | Average | | Number of | | Average | ||||||||||||
| | Stock | | Exercise | | Stock | | Exercise | ||||||||||||
| | Options | | Price | | Options | | Price | ||||||||||||
Stock options outstanding at beginning of period |
| 18,546 |
| $ | 64.49 |
| 5,723 |
| $ | 276.50 |
| 37,786 | | $ | 37.42 |
| 19,170 | | $ | 80.00 |
Granted |
| 20,942 |
|
| 19.25 |
| 16,254 |
|
| 49.00 |
| 125,804 | |
| 1.59 |
| 20,942 | |
| 19.25 |
Expired |
| (1,040) |
|
| 78.00 |
| (1,608) |
|
| 262.00 |
| (1,693) | | | 101.64 |
| (1,664) | |
| 78.00 |
Canceled or forfeited |
| (550) |
|
| 19.25 |
| — |
|
| — | | — | | | — | | (550) | | | 19.25 |
Stock options outstanding at end of period |
| 37,898 |
| $ | 39.78 |
| 20,369 |
| $ | 95.50 |
| 161,897 | | $ | 9.25 |
| 37,898 | | $ | 39.78 |
Stock options exercisable at end of period |
| 37,898 |
| $ | 39.78 |
| 20,369 |
| $ | 95.50 |
| 36,093 | | $ | 34.41 |
| 37,898 | | $ | 39.78 |
| | | | | | | | | | |
The following table summarizes stock options outstanding and exercisable by stock option plan at September 30, 2019:2020:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Outstanding Stock Options |
| Exercisable Stock Options | ||||||||||||||||
|
| Number of |
| Weighted |
| Number of |
| Weighted | ||||||||||||
|
| Outstanding |
| Average |
| Stock Options |
| Average | ||||||||||||
| | | | | | | | | | | ||||||||||
| | Outstanding Stock Options | | Exercisable Stock Options | ||||||||||||||||
|
| Number of |
| Weighted |
| Number of |
| Weighted | ||||||||||||
| | Outstanding | | Average | | Stock Options | | Average | ||||||||||||
Stock Option Plan |
| Stock Options |
| Exercise Price |
| Exercisable |
| Exercise Price | | Stock Options | | Exercise Price | | Exercisable | | Exercise Price | ||||
2004 Plan |
| 96 |
| $ | 1,752.25 |
| 96 |
| $ | 1,752.25 |
| 92 | | $ | 1,638.00 |
| 92 | | $ | 1,638.00 |
2004 Directors’ Plan |
| 3 |
|
| 10,380.00 |
| 3 |
|
| 10,380.00 |
| 3 | |
| 10,380.00 |
| 3 | |
| 10,380.00 |
2013 Plan |
| 33,158 |
|
| 25.47 |
| 33,158 |
|
| 25.47 |
| 158,962 | |
| 6.92 |
| 33,158 | |
| 25.47 |
Replacement Options-AGC |
| 4,528 |
|
| 81.65 |
| 4,528 |
|
| 81.65 | ||||||||||
Replacement Options-AEK |
| 113 |
|
| 831.50 |
| 113 |
|
| 831.50 | ||||||||||
|
| 37,898 |
| $ | 39.78 |
| 37,898 |
| $ | 39.78 | ||||||||||
Replacement Options-Alabama Graphite |
| 2,840 | |
| 75.94 |
| 2,840 | |
| 75.94 | ||||||||||
|
| 161,897 | | $ | 9.25 |
| 36,093 | | $ | 34.41 |
19
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Restricted Stock Units
Time-based and performance-based RSUs are valued using the closing share price of the Company’s common stock on the date of grant. The final number of shares issued under performance-based RSUs is generally based on the Company’s prior year performance as determined by the Compensation Committee of the Board of Directors at each vesting date, and the valuation of such awards assumes full satisfaction of all performance criteria.
19
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following tabletables summarizes RSU activity for the three-monththree and nine-month periods ended September 30, 20192020 and 2018:2019:
| | | | | | | | | | |
| | Three months ended | | Three months ended | ||||||
| | September 30, | | September 30, | ||||||
| | 2020 | | 2019 | ||||||
|
| |
| Weighted- |
| |
| Weighted- | ||
| | | | Average | | | | Average | ||
| | Number of | | Grant Date | | Number of | | Grant Date | ||
| | RSUs | | Fair Value | | RSUs | | Fair Value | ||
Unvested RSUs at beginning of period |
| 211,497 | | $ | 2.03 |
| 1,695 | | $ | 70.00 |
Granted |
| — | |
| — |
| — | |
| — |
Forfeited |
| — | |
| — |
| — | |
| — |
Vested |
| — | |
| — |
| — | |
| — |
Unvested RSUs at end of period |
| 211,497 | | $ | 2.03 |
| 1,695 | | $ | 70.00 |
| | | | | | | | | | |
| | Nine months ended | | Nine months ended | ||||||
| | September 30, | | September 30, | ||||||
| | 2020 | | 2019 | ||||||
|
| |
| Weighted- |
| |
| Weighted- | ||
| | | | Average | | | | Average | ||
| | Number of | | Grant Date | | Number of | | Grant Date | ||
| | RSUs | | Fair Value | | RSUs | | Fair Value | ||
Unvested RSUs at beginning of period |
| — | | $ | — |
| 2,260 | | $ | 70.00 |
Granted |
| 211,497 | |
| 2.03 |
| — | |
| — |
Forfeited |
| — | |
| — |
| (565) | |
| 70.00 |
Vested |
| — | |
| — |
| — | |
| — |
Unvested RSUs at end of period |
| 211,497 | | $ | 2.03 |
| 1,695 | | $ | 70.00 |
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| September 30, | ||||||
|
| 2019 |
| 2018 | ||||||
|
|
|
| Weighted- |
|
|
| Weighted- | ||
|
|
|
| Average |
|
|
| Average | ||
|
| Number of |
| Grant Date |
| Number of |
| Grant Date | ||
|
| RSUs |
| Fair Value |
| RSUs |
| Fair Value | ||
Unvested RSUs at beginning of period |
| 1,695 |
| $ | 70.00 |
| 3,578 |
| $ | 70.00 |
Granted |
| — |
|
| — |
| — |
|
| — |
Forfeited |
| — |
|
| — |
| (189) |
|
| 70.00 |
Vested |
| — |
|
| — |
| — |
|
| — |
Unvested RSUs at end of period |
| 1,695 |
| $ | 70.00 |
| 3,389 |
| $ | 70.00 |
12. EARNINGS PER SHARE
Basic and diluted loss per common share have been calculated based on the weighted-average shares outstanding during the period. Additionally, potentially dilutive shares of 237,214 and 38,865559,576 were excluded from the calculation of earnings per share because the effect on the basic income per share would be anti-dilutive for the nine months ended September 30, 2019 and 2018, respectively.2020.
13. COMMITMENTS AND CONTINGENCIES
The Company’s uranium recovery operations are subject to federal and state regulations for the protection of the environment, including water quality. Future closure and reclamation costs are provided for as each pound of uranium is produced on a unit‑of‑productionunit-of-production basis. The Company reviews its reclamation obligations each year and determines the appropriate unit charge. The Company also evaluates the status of current environmental laws and their potential impact on their accrual for costs. The Company believes its operations are materially compliant with current environmental regulations.
20
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
At any given time, the Company may enter into negotiations to settle outstanding legal proceedings and any resulting accruals will be estimated based on the relevant facts and circumstances applicable at that time. We do not expect that such settlements will, individually or in the aggregate, have a material effect on our financial position, results of operations or cash flows.
14. LEASES
Lease Adoption January 1, 2019
In February 2016, the FASB issued ASU No. 2016‑02, “Leases (Topic 842)”. This new standard requires lessees to recognize leases on their balance sheets. It also requires a dual approach for lessee accounting under which a lessee accounts for leases as finance leases or operating leases with the recognitionThe Company’s lease portfolio consists of a right-of-use asset and a corresponding lease liability. For operating leases, the lessee recognizes straight-line lease expense. The new lease accounting standard along with the clarifying amendments subsequently issued by the FASB, collectively became effective for the Company on January 1, 2019. The Company adopted the new lease accounting standard by applying the new lease guidance at the adoption date on January 1, 2019, and as allowed under the transition relief provided in ASU 2018‑11, elected not to restate comparative periods. As of January 1, 2019, in connection with the adoption of the new lease accounting standard, the Company recorded a right-of-use lease asset totaling $595,870 with a corresponding lease liability totaling $599,596.
The right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are
20
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
recognized at the commencement date of the lease based on the present value of lease payments over the lease term using a discount rate of 9.5%. This rate is the Company’s current estimated incremental borrowing rate.
The Company has operating leases for corporate offices, storage space and equipment. The leases have remaining lease terms of 13 months to 53 years, one of which includes an option to extend the corporate office lease for 3 years. Under our corporate office lease, we are required to reimburse the lessor each month for common use expenses such as maintenance and security services. Because these amounts are variable from year to year and not specifically set in the lease terms, they are not included in the measurement of the right-of-use asset and related lease liability, but rather expensed in the period incurred.
The Company is party to several leases that are for under one year in length. These include such leases as those for land used in exploration and mining activities, office equipment, machinery, office space, storage and other. The Company has elected the short-term lease exemptions allowed under the new leasing standards, whereby leases with initial terms of one year or less are not capitalized and instead expensed on a straight-line basis over the lease term. In addition, the Company holds numerous leases related to mineral exploration and production to which it has not applied the new leasing standard. Leases to explore or use minerals and similar nonregenerative resources are specifically excluded by ASC 842-10.
The right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term using a discount rate of 9.5%. This rate is the Company’s current estimated incremental borrowing rate.
The components of lease expense wereare as follows:
|
|
|
| ||||||
|
| September 30, | |||||||
| | | | | | ||||
|
| Nine months | | Nine months | |||||
| | ended | | ended | |||||
| | September 30, | | | September 30, | ||||
(thousands of dollars) |
| 2019 | | 2020 | | 2019 | |||
Operating lease cost |
| $ | 121 | ||||||
Operating Lease Cost | | | | | | | |||
Continuing Operations | | $ | 112 | | $ | 112 | |||
Discontinued Operations | | | 4 | | | 4 | |||
| | $ | 116 | | $ | 116 |
Supplemental cash flow information related to the Company’s operating leases wasis as follows:
|
|
|
| |||||||||
|
| Nine months | ||||||||||
|
| ended | ||||||||||
|
| September 30, 2019 | ||||||||||
| | | | | | | | | | |||
| | | Nine months | | Nine months | |||||||
| | | ended | | ended | |||||||
|
| | September 30, 2020 | | September 30, 2019 | |||||||
(thousands of dollars) |
| | Continuing Operations | | Discontinued Operations | | Continuing Operations | | Discontinued Operations | |||
Cash paid for amounts included in lease liabilities: |
|
|
| | | | | | | | | |
(thousands of dollars) |
|
|
| |||||||||
Operating cash flows from operating leases |
| $ | 117 | |||||||||
|
|
|
| |||||||||
| | | | | | | | | | |||
Cash flows from operating leases | | $ | 115 | $ | 4 | $ | 113 | $ | 4 | |||
| | | | | | | | | | |||
Right-of-use assets obtained in exchange for lease obligations: |
|
|
| |
|
| | |
|
| | |
Operating leases |
| $ | 513 | | $ | 383 | $ | 10 | $ | 498 | $ | 15 |
21
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental balance sheet information related to the Company’s operating leases wasis as follows:
|
|
|
| ||||||||||||
|
| September 30, | |||||||||||||
| | | | | | | | | | | | | |||
|
| September 30, | | December 31, | |||||||||||
| | 2020 | | 2019 | |||||||||||
(thousands of dollars, except lease term and discount rate) |
| 2019 |
| | Continuing Operations |
| | Discontinued Operations | | | Continuing Operations | |
| Discontinued Operations | |
Operating Leases |
|
|
| | | | | | | | | | | | |
Operating lease right-of-use assets |
| $ | 513 | | $ | 383 | | $ | 10 | | $ | 470 | | $ | 14 |
|
|
|
| ||||||||||||
| | | | | | | | | | | | | |||
Current portion of lease liabilities |
| $ | 152 | | | 149 | | | 10 | | | 147 | | | 6 |
Operating lease liabilities – long term portion |
|
| 369 | | | 245 | | | — | | | 332 | | | 8 |
Total operating lease liabilities |
| $ | 521 | | $ | 394 | | $ | 10 | | $ | 479 | | $ | 14 |
Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:
| ||||
| ||||
|
|
|
| |
|
|
|
|
| | | | | | | |
| | | September 30, | | September 30, | ||
| | | 2020 | | 2019 | ||
Weighted Average Remaining Lease Term (in years) | |
| 3.0 | | | 4.0 | |
| | | | | | | |
Discount Rate | |
| 9.5 | % | | 9.5 | % |
21
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Maturities of lease liabilities for the Company’s operating leases are as follows:
|
|
|
|
|
|
|
| Operating | |
| Lease payments by year (In thousands) |
| Leases | |
| 2019 |
| $ | 39 |
| 2020 |
|
| 159 |
| 2021 |
|
| 161 |
| 2022 |
|
| 162 |
| 2023 |
|
| 92 |
| Total lease payments |
|
| 613 |
| Less imputed interest |
|
| (92) |
| Total |
| $ | 521 |
| | | | | |
|
| September 30, | |||
| | 2020 | |||
Lease payments by year (In thousands) | | | Continuing Operations | | Discontinued Operations |
2020 (remainder of year ) | | $ | 38 | $ | 2 |
2021 | |
| 155 | | 6 |
2022 | |
| 158 | | 4 |
2023 | |
| 92 | | — |
Total lease payments | |
| 443 | | 12 |
Less imputed interest | |
| (49) | | (2) |
Total Operating Lease Liability | | $ | 394 | $ | 10 |
As of September 30, 2019,2020, the companyCompany has $0.5$0.4 million in right-of-useassets and $0.5$0.4 million in related lease liabilities ($0.20.1 million of which is current). The most significant operating lease is for its corporate office in Centennial, Colorado, with $0.6$0.4 million remaining in undiscounted cash payments through the end of the lease term in 2023. The total undiscounted cash payments remaining on operating leases through the end of their respective terms is $0.6$0.4 million.
All but one operating lease are part of the company’s Continuing Operations. In May 2017 the Company’s wholly-owned subsidiary, URI, Inc. entered into an irrevocable 63 month equipment and servicing lease for a Toshiba copier used in its office in Kingsville, Texas. This lease is included in the disposal group that will be transferred to enCore in the sale of the Company’s U.S. uranium properties expected to close by year-end 2020. At September 30, 2020, there was 22 months left on the lease with a right-of-use asset balance of approximately $10,000 and a related lease liability for the same amount. These balances are included in assets held for sale and liabilities related to assets held for sale on the balance sheet. Monthly lease payments are included in the Income/Loss from Discontinued Operations.
22
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
15. GEOGRAPHIC AND SEGMENT INFORMATION
TheIn addition to its corporate operations, the Company currently operates in threea graphite battery-materials reportable segments,segment. During the quarter ended September 30, 2020, the Company made the strategic decision to sell its uranium business and discontinue its lithium business, both of which are uranium, lithium and graphite mining activities, includingconducted exploration, standby operations and restoration and reclamation activities.activities (see Note 8). As a partresult of these activities,entering into the LOI to sell the uranium business and the Company’s decision to discontinue investment into its lithium business, the Company also explores, evaluateshas reclassed all uranium and if warranted, permits uranium, lithium and graphite properties. The Company’s long-term assets were $24.8 million and $25.8 millionbusiness activities as of September 30, 2019 and December 31, 2018, respectively. 100% of the long-term assets are located in the United States. The Company reported no revenues during the nine months ended September 30, 2019 and September 30, 2018.discontinued operations.
The reportable segments are those operations whose operating results are reviewed by the Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance provided those operations pass certain quantitative thresholds. Operations whose revenues, earnings or losses or assets exceed or are expected to exceed 10% of the total consolidated revenue, earnings or losses or assets are reportable segments. Information about current assets and liabilities of the segments has not been provided because the information is not used to assess performance.
The tabletables below providesprovide a breakdown of the long-term assets by reportable segments as of September 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | |
| | September 30, 2020 | |||||||
(thousands of dollars) | | Corporate |
| Graphite |
| Total | |||
| | | | | | | |
| |
Net property, plant and equipment | | $ | 24 | | $ | 8,972 | | $ | 8,996 |
Restricted cash | |
| 797 | |
| 10 | |
| 807 |
Operating lease right of use assets | |
| 383 | |
| — | |
| 383 |
Total long-term assets | | $ | 1,204 | | $ | 8,982 | | $ | 10,186 |
| | | | | | | | | |
| | December 31, 2019 | |||||||
(thousands of dollars) | | Corporate |
| Graphite |
| Total | |||
| | | | | | | |
| |
Net property, plant and equipment | | $ | 23 | | $ | 8,972 | | $ | 8,995 |
Restricted cash | |
| 787 | |
| 10 | |
| 797 |
Operating lease right of use assets | |
| 470 | |
| — | |
| 470 |
Total long-term assets | | $ | 1,280 | | $ | 8,982 | | $ | 10,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2019 | |||||||||||||
(thousands of dollars) |
| Corporate |
| Uranium |
| Lithium |
| Graphite |
| Total | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
| $ | 126 |
| $ | 11,383 |
| $ | — |
| $ | 8,972 |
| $ | 20,481 |
Restricted cash |
|
| — |
|
| 3,774 |
|
| — |
|
| 10 |
|
| 3,784 |
Operating lease right of use assets |
|
| 490 |
|
| 23 |
|
| — |
|
| — |
|
| 513 |
Total long-term assets |
| $ | 616 |
| $ | 15,180 |
| $ | — |
| $ | 8,982 |
| $ | 24,778 |
22
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | |||||||||||||
(thousands of dollars) |
| Corporate |
| Uranium |
| Lithium |
| Graphite |
| Total | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
| $ | 162 |
| $ | 11,418 |
| $ | — |
| $ | 8,973 |
| $ | 20,553 |
Restricted cash |
|
| — |
|
| 3,722 |
|
| — |
|
| 10 |
|
| 3,732 |
Notes receivable, non-current |
|
| — |
|
| 1,493 |
|
| — |
|
| — |
|
| 1,493 |
Total long-term assets |
| $ | 162 |
| $ | 16,633 |
| $ | — |
| $ | 8,983 |
| $ | 25,778 |
The tabletables below providesprovide a breakdown of the reportable segments for the three months ended September 30, 20192020 and September 30, 2018.2019. Non-mining activities and other administrative operations are reported in the Corporate column.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Three months Ended | ||||||||||||||||||||||
|
| September 30, 2019 | ||||||||||||||||||||||
| | | | | | | | | | |||||||||||||||
| | Three months Ended | ||||||||||||||||||||||
| | September 30, 2020 | ||||||||||||||||||||||
(thousands of dollars) |
| Corporate |
| Uranium |
| Lithium |
| Graphite |
| Total |
| Corporate |
| Graphite |
| Total | ||||||||
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | |
| | |
|
Mineral property expenses |
| $ | — |
| $ | 583 |
| $ | 237 |
| $ | 31 |
| $ | 851 | | $ | — | | $ | 12 |
| $ | 12 |
Product development expenses | | | — | | | 1,641 | | | 1,641 | |||||||||||||||
General and administrative expenses |
|
| 844 |
|
| 447 |
|
| 1 |
|
| 67 |
|
| 1,359 | |
| 1,347 | |
| 189 |
|
| 1,536 |
Arbitration expenses |
|
| 146 |
|
| — |
|
| — |
|
| — |
|
| 146 | | | 171 | | | — | | | 171 |
Accretion of asset retirement costs |
|
| — |
|
| 197 |
|
| — |
|
| — |
|
| 197 | |||||||||
Depreciation and amortization |
|
| 1 |
|
| 22 |
|
| — |
|
| — |
|
| 23 | |
| (19) | |
| — |
|
| (19) |
| | | 1,499 | | | 1,842 | | | 3,341 | |||||||||||||||
Loss from operations |
|
| (991) |
|
| (1,249) |
|
| (238) |
|
| (98) |
|
| (2,576) | |
| (1,499) | |
| (1,842) |
|
| (3,341) |
Other income |
|
| 13 |
|
| 729 |
|
| — |
|
| — |
|
| 742 | |||||||||
Other income/(expense) | |
| (21) | |
| — |
|
| (21) | |||||||||||||||
Loss before taxes |
| $ | (978) |
| $ | (520) |
| $ | (238) |
| $ | (98) |
| $ | (1,834) | | $ | (1,520) | | $ | (1,842) |
| $ | (3,362) |
23
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| | | | | | | | | |
| | Three months Ended | |||||||
| | September 30, 2019 | |||||||
(thousands of dollars) |
| Corporate |
| Graphite |
| Total | |||
Statement of Operations |
| |
|
| |
|
| |
|
Mineral property expenses | | $ | — | | $ | 12 | | $ | 12 |
Product development expenses | | | — | | | 19 | | | 19 |
General and administrative | |
| 936 | |
| 67 | |
| 1,003 |
Arbitration expenses | | | 146 | | | — | | | 146 |
Depreciation and amortization | |
| 3 | |
| — | |
| 3 |
| | | 1,085 | | | 98 | | | 1,183 |
Loss from operations | |
| (1,085) | |
| (98) | |
| (1,183) |
Other income | |
| 13 | |
| — | |
| 13 |
Loss before taxes | | $ | (1,072) | | $ | (98) | | $ | (1,170) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months Ended | |||||||||||||
|
| September 30, 2018 | |||||||||||||
(thousands of dollars) |
| Corporate |
| Uranium |
| Lithium |
| Graphite |
| Total | |||||
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property expenses |
| $ | — |
| $ | 600 |
| $ | 317 |
| $ | 38 |
| $ | 955 |
General and administrative |
|
| 1,086 |
|
| 478 |
|
| — |
|
| 141 |
|
| 1,705 |
Arbitration expenses |
|
| 98 |
|
| — |
|
| — |
|
| — |
|
| 98 |
Accretion of asset retirement costs |
|
| — |
|
| 133 |
|
| — |
|
| — |
|
| 133 |
Depreciation and amortization |
|
| 1 |
|
| 26 |
|
| — |
|
| — |
|
| 27 |
Loss from operations |
|
| (1,185) |
|
| (1,237) |
|
| (317) |
|
| (179) |
|
| (2,918) |
Other income (expense) |
|
| (246) |
|
| 27 |
|
| — |
|
| — |
|
| (219) |
Loss before taxes |
| $ | (1,431) |
| $ | (1,210) |
| $ | (317) |
| $ | (179) |
| $ | (3,137) |
The tabletables below providesprovide a breakdown of the reportable segments for the nine months ended September 30, 20192020 and September 30, 2018.2019. Non-mining activities and other administrative operations are reported in the Corporate column.
| | | | | | | | | |
| | Nine months Ended | |||||||
| | September 30, 2020 | |||||||
(thousands of dollars) |
| Corporate |
| Graphite |
| Total | |||
Statement of Operations |
| |
|
| |
|
| |
|
Mineral property expenses | | $ | — | | $ | 18 | | $ | 18 |
Product development expenses | | | — | | | 1,942 | | | 1,942 |
General and administrative | |
| 3,630 | |
| 476 | |
| 4,106 |
Arbitration expenses | | | 868 | | | — | | | 868 |
Accretion of asset retirement costs | |
| — | |
| — | |
| — |
Depreciation and amortization | |
| 5 | |
| — | |
| 5 |
| |
| 4,503 | |
| 2,436 | |
| 6,939 |
Loss from continuing operations | |
| (4,503) | |
| (2,436) | |
| (6,939) |
Other income | |
| (7) | |
| — | |
| (7) |
Loss before taxes | | $ | (4,496) | | $ | (2,436) | | $ | (6,932) |
| | | | | | | | | |
| | Nine months Ended | |||||||
| | September 30, 2019 | |||||||
(thousands of dollars) |
| Corporate |
| Graphite |
| Total | |||
Statement of Operations | |
| | |
| | |
| |
Mineral property expenses | | $ | — | | $ | 77 | | $ | 77 |
Product development expenses | | | — | | | 51 | | | 51 |
General and administrative | |
| 3,300 | |
| 283 | |
| 3,583 |
Arbitration expenses | | | 631 | | | — | | | 631 |
Accretion of asset retirement costs | |
| — | |
| — | |
| — |
Depreciation and amortization | |
| 5 | |
| — | |
| 5 |
| |
| 3,936 | |
| 411 | |
| 4,347 |
Loss from continuing operations | |
| (3,936) | |
| (411) | |
| (4,347) |
Other (expense) | |
| (384) | |
| — | |
| (384) |
Loss before taxes | | $ | (4,320) | | $ | (411) | | $ | (4,731) |
23
WESTWATER RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine months Ended | |||||||||||||
|
| September 30, 2019 | |||||||||||||
(thousands of dollars) |
| Corporate |
| Uranium |
| Lithium |
| Graphite |
| Total | |||||
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property expenses |
| $ | — |
| $ | 1,942 |
| $ | 239 |
| $ | 128 |
| $ | 2,309 |
General and administrative |
|
| 3,208 |
|
| 1,272 |
|
| 1 |
|
| 283 |
|
| 4,764 |
Arbitration expenses |
|
| 631 |
|
| — |
|
| — |
|
| — |
|
| 631 |
Accretion of asset retirement costs |
|
| — |
|
| 353 |
|
| — |
|
| — |
|
| 353 |
Depreciation and amortization |
|
| 3 |
|
| 68 |
|
| — |
|
| — |
|
| 71 |
Loss from operations |
|
| (3,842) |
|
| (3,635) |
|
| (240) |
|
| (411) |
|
| (8,128) |
Other income (expense) |
|
| (384) |
|
| 729 |
|
| — |
|
| — |
|
| 345 |
Loss before taxes |
| $ | (4,226) |
| $ | (2,906) |
| $ | (240) |
| $ | (411) |
| $ | (7,783) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine months Ended | |||||||||||||
|
| September 30, 2018 | |||||||||||||
(thousands of dollars) |
| Corporate |
| Uranium |
| Lithium |
| Graphite |
| Total | |||||
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property expenses |
| $ | — |
| $ | 2,204 |
| $ | 455 |
| $ | 47 |
| $ | 2,706 |
General and administrative |
|
| 3,676 |
|
| 1,383 |
|
| — |
|
| 378 |
|
| 5,437 |
Arbitration expenses |
|
| 225 |
|
| — |
|
| — |
|
| — |
|
| 225 |
Acquisition related expenses |
|
| 333 |
|
| — |
|
| — |
|
| — |
|
| 333 |
Accretion of asset retirement costs |
|
| — |
|
| 401 |
|
| — |
|
| — |
|
| 401 |
Depreciation and amortization |
|
| 3 |
|
| 90 |
|
| — |
|
| 1 |
|
| 94 |
Impairment of Uranium properties |
|
| — |
|
| 17,968 |
|
| — |
|
| — |
|
| 17,968 |
Loss from operations |
|
| (4,237) |
|
| (22,046) |
|
| (455) |
|
| (426) |
|
| (27,164) |
Other income |
|
| 8 |
|
| 144 |
|
| — |
|
| — |
|
| 152 |
Loss before taxes |
| $ | (4,229) |
| $ | (21,902) |
| $ | (455) |
| $ | (426) |
| $ | (27,012) |
24
16. NOTES PAYABLE
Loan under the Paycheck Protection Program (PPP)
On May 4, 2020, URI, Inc, a wholly owned subsidiary of Westwater, received loan proceeds in the amount of $0.3 million under the Paycheck Protection Program (“PPP”) in accordance with the terms of a promissory note executed in favor of Celtic Bank Corporation, a Salt Lake City based Small Business Administration (“SBA”) Preferred Lender. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for forgivable loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loan and accrued interest are forgivable as long as the borrower uses the loan proceeds for eligible purposes, including payroll costs, rent and utilities. No more than 40% of the amount forgiven can be attributable to non-payroll costs. Any unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%. The deadline to apply for loan forgiveness is the maturity date of the loan, which is April 30, 2022. As part of the Flexibility Act, the deferral period for loan payments increased from 6 months to 10 months after the end of the borrower’s loan forgiveness covered period. Our 24-week covered period began when loan proceeds were received May 4, 2020 and ended October 19, 2020. Based on the changes to the deferral period, the Company has until August 19, 2021 to apply for loan forgiveness before payments on the principal, interest and fees are due.
The Company used the proceeds for funding its payroll and benefits costs for the restart of South Texas operations, purposes consistent with the PPP. The Company’s South Texas operations were shut down and employees furloughed in March 2020 due to the severe downturn in the capital markets and uncertainty about when economic conditions would return to normal. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan and is in the process of preparing the SBA’s forgiveness application, no assurance can be provided that the Company will obtain forgiveness of the loan, in whole or in part. At September 30, 2020, the loan proceeds are included in Current Liabilities Held for Sale on the Condensed Consolidated Balance Sheets. See also Note 8.
17. SUBSEQUENT EVENT – CAPITAL RAISE
During the month of October 2020, the Company sold 7.3 million shares of common stock for net proceeds of $42.0 million pursuant to the ATM Offering Agreement with Cantor Fitzgerald & Co. These shares were sold pursuant to a prospectus supplement filed on October 8, 2020 pursuant to Rule 424(b)(5) as a takedown off the Company’s shelf registration statement which had been declared effective by the Securities and Exchange Commission on April 13, 2020.
Also during the month of October 2020, the Company sold 1.1 million shares of common stock for net proceeds of $8.2 million pursuant to the 2020 Purchase Agreement with Lincoln Park. These shares were sold pursuant to a Form S-1 registration statement filed pursuant to Rule 424(b)(3) and declared effective by the Securities and Exchange Commission on October 2, 2020.
The receipt of combined net proceeds in the amount of $50.2 million from these financing facilities has resulted in a cash balance of approximately $53.3 million at October 31, 2020. The significant treasury balance has mitigated the Company’s capital risk through 2021 as the Company’s budgeted pilot plant program for processing battery-grade graphite and the remaining budgeted product development costs are now fully funded.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of the consolidated financial results and condition of Westwater for the three and nine months ended September 30, 20192020 has been prepared based on information available to
25
us as of November 6, 2019.12, 2020. 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 WWR for the period ended December 31, 20182019 and the related notes thereto filed with our Annual Report on Form 10‑K,10-K, 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.”
INTRODUCTION
Westwater Resources, Inc. is a 40-year-old public company trading on the Nasdaq Capital Market focused on battery graphite development under the symbol “WWR.” Originally incorporated in 1977 as Uranium Resources, Inc. to mine uranium in Texas, our company has been reborn as an energy minerals exploration and energy-related materials development company. The Company’s battery developer. Westwater now is focused on battery-ready graphite materials projects include graphite and lithium mineral properties. We established our graphite business in 2018 with theafter its acquisition of Alabama Graphite Corp. (“Alabama Graphite”) and its Coosa Graphite Project along(“Coosa Project”) in Alabama in April 2018. Westwater recently discovered significant vanadium concentrations at the Coosa Project and has developed an exploration plan to further investigate the size and extent of those concentrations.
RECENT DEVELOPMENTS
Sale of Uranium Business
On September 1, 2020, Westwater signed a binding letter of intent (“LOI”) to sell its U.S. uranium assets located in New Mexico and Texas to enCore Energy Corp. (“enCore”), a corporation incorporated under the laws of British Columbia, Canada, and a Toronto Venture Exchange-listed company (TSX.V:EU). Total compensation accruing to Westwater as part of the deal is expected to be in excess of $2.0 million in enCore shares and royalties from future production from Westwater’s New Mexico uranium properties. All remaining reclamation liabilities and bonding obligations for the Company’s Texas uranium properties will be transferred to enCore at the time of sale, with the associated Coosa Graphite Mine located across 41,900 acres (17,000 ha)transaction expected to close on or before December 31, 2020. The transaction is subject to further due diligence, the execution of a definitive agreement, and other customary conditions., and there can be no assurance that the transaction will be completed. The transaction does not include Westwater’s uranium interests in east-central Alabama. We established our lithium business in 2016Turkey, which are subject to an ongoing international arbitration proceeding.
As a result of the estimated value of consideration received and currently control mineral rights encompassing approximately 36,920 acres (14,941 ha) across two prospective lithium brine basins in Nevada and Utah.
The Company maintains optionality on future rising uranium prices with significant uranium property holdings located in Texas and New Mexico. In Texas,carrying values of asset/liabilities transferred, the Company has two licensedrecorded a $5.2 million impairment charge. However, and currently idledimportantly, the Company will continue its participation in the uranium processing facilitiessector as a significant shareholder of enCore and approximately 11,000 acres (4,400 ha) of prospective in-situ recovery uranium projects. Ina royalty holder on the New Mexico uranium properties, while transferring responsibility for remaining reclamation to enCore. At the same time, the Company controls mineral rights encompassing approximately 188,700 acres (76,394 ha)expects to save over $4.0 million per year for the next several years in land payments, reclamation expenses and operating costs associated with the prolific Grants Mineral Belt, whichuranium properties, funds that can be invested in developing our graphite business. The successful closing of this transaction will complete the Company’s strategic shift to battery graphite materials, and will allow the Company to devote its full focus and attention on advancing its battery-grade graphite product business.
Graphite Business Developments
Westwater’s graphite business plan continues without pause. Westwater remains focused on the battery materials markets, the end markets for those products, and the role that can be played in supplying critical materials to serve them.
In June 2020, Westwater announced that independent testing of Westwater’s ULTRA-PMGTM battery graphite material has shown outstanding resistivity values as a conductive additive. This milestone achievement is a critical step in developing Westwater’s battery graphite business. ULTRA-PMGTM is one of the largest concentrations of sandstone-hosted uranium depositskey products in the world. Incorporated in 1977 as Uranium Resources, Inc., WWR also owns an extensive uranium information database of historic drill hole logs, assay certificates, maps and technical reports for the western United States.
Graphite, Lithium and Uranium Listed as Critical Materials
A Presidential Executive Order on a Federal StrategyCoosa Project business plan being produced at laboratory-scale using proprietary processes that Westwater intends to Ensure Secure and Reliable Supplies of Critical Minerals was issued on December 20, 2017, which we believe will accelerate important energy related mineral developmentutilize in the United States. In conjunction with Professional Paper 1802, published by the US Geological Service (“USGS”), where 23 minerals are identifiedpilot program later this year. Successful performance testing demonstrates that Westwater can manufacture ULTRA-PMGTM as critical to the Country’s security and economy, WWR believes these actions are important steps in support of domestic minerals development. One of the important steps outlined in the Executive Order required a list of critical minerals to be provided by the US Secretary of the Interior. This list was provided and includedpremium-grade, conductive enhancement material for all three of WWR’s contemplated portfolio products consisting of graphite, lithium and uranium. Graphite and lithium, in particular, are critical to the developmenttypes of batteries and other energy storage systems essential to the electric vehicle, solar and wind power industries.at larger scale.
Section 232 Investigation
The US Department of Commerce initiated a Section 232 investigation in July 2018 to determine whether the present quantity of uranium ore and product imports threaten to impair US national security. This trade investigation was initiated under Section 232 of the Trade Expansion Act after two US uranium producers petitioned the Department of Commerce in January 2018, seeking an order that US nuclear utilities be required to purchase 25% of their uranium from US domestic production. US uranium production has declined significantly since 1987, with domestic uranium producers experiencing a major slowdown in operations and employment.
On July 12, 2019, President Trump announced the completion of the Section 232 trade investigation. President Trump decided to take no trade action, which has allayed market uncertainty about whether a quota, tariff or other trade action would be imposed under the broad power delegated to the President under Section 232. Instead, President Trump
2526
orderedIn July 2020, Westwater announced that independent performance testing of Westwater’s ULTRA-CSPGTM (Coated Spherical Purified Graphite "CSPG”) material produced in a reviewlaboratory setting shows that it performs as well or better than benchmark commercially available natural flake and synthetic materials. ULTRA-CSPGTM is Westwater’s anode material which is utilized in lithium ion batteries, which are used in the fast-growing electric vehicle market. Current estimates of the savings in CO2 emissions once our projected plant reaches full production range above 322,000 metric tons per year through the use of our ULTRA-CSPGTM U product in electric vehicles her in the United States.
In August 20, 2020, Westwater announced it had engaged Dorfner Anzaplan of Hirschau, Germany to execute its pilot plant that will advance the development of processes needed to purify graphite concentrates and to produce Westwater’s battery grade products: ULTRA-PMGTM, ULTRA-CSPGTM and ULTRA-DEXDGTM. Dorfner Anzaplan is an internationally recognized and highly regarded organization that specializes in high-purity industrial and strategic metals businesses. Dorfner Anzaplan will employ state-of-the-art analytical methods and facilities and use innovative processing technologies to provide effective solutions tailored to Westwater’s requirements. Planning and construction of an operational pilot plant is underway, and operation of the pilot plant is anticipated by the end of the year.
Westwater has developed proprietary processes for the production of battery grade graphite from non-Chinese sources that are designed to manufacture high performing products while ensuring a sustainable environmental footprint and low production costs. Test work on the products from these processes has been performed already in laboratories in Germany and the United States, and those results show that the performance of the Coosa Project’s graphite is on par with or exceeds that of currently available battery products. The next step in Westwater’s development process is the operation of a pilot plant that is designed to process approximately 30-tonnes of graphite concentrate and to produce more than ten metric tons of ULTRA-PMGTM, ULTRA-CSPGTM and ULTRA-DEXDGTM products, now scheduled for the fourth quarter of this year and the first quarter of 2021.
Westwater has filed a provisional patent application with the U.S. Patent and Trademark Office for its proprietary graphite purification technology. This proprietary process, which does not utilize hydrofluoric acid, is a purification methodology that has a more environmentally sustainable footprint than those processes currently used in China and elsewhere. Our purification process is an integral component in our pilot plant program, which we announced on August 8, 2020. Westwater also announced the filing of the Provisional Patent application on September 8, 2020.
The invention claimed in the provisional patent application relates to a method of obtaining highly purified graphite – having a graphitic carbon (Cg) grade of at least 99.95% – from a natural flake graphite concentrate sample. The method consists of three steps: (1) caustic roasting of the graphite concentrate sample; (2) acid leaching of the roasted sample; and (3) thermal treatment of the sample. Additional steps involving water washing and drying are included in some methods. The methods provided in the application may further include any combination of varying the weight percentage of the caustic solution, varying the temperature of and time for the caustic roasting, varying the temperature of and time for the acid leaching, and/or varying the temperature of, time for, and the atmosphere used in the thermal treatment.
Sales and Marketing Executive
Westwater hired Jay Wago as Vice President – Sales and Marketing on July 1, 2020. Mr. Wago is a proven sales leader, whose unique skills and experience will be instrumental in leading Westwater’s sales and marketing efforts for our battery graphite materials business. The addition of Mr. Wago will help position Westwater to scale its marketing efforts to generate greater awareness of our American-made battery graphite materials to end-users throughout the world.
Graphite and Vanadium Listed as Critical Materials
On September 30, 2020, the President signed an Executive Order (the “Order”) that addresses the threat to the U.S. domestic nuclear supply chain (uranium production, conversion, enrichment and fabrication)from reliance on critical minerals from foreign adversaries. The critical minerals referred to in the contextOrder were previously identified by the Department of Interior in May 2018, and include both natural graphite and vanadium.
27
The President’s declaration that the United States' heavy reliance on foreign nations for critical minerals is a national emergency, highlights the importance of the 2017 White House initiativeWestwater’s plans to revive, revitalizedevelop the Coosa Graphite Deposit in east-central Alabama. Westwater’s business plan for the Coosa Graphite Project over the next two and expanda half years is to develop a U.S. domestic supply for natural graphite for use in all types of batteries in the nuclearUnited States. During recent exploration activities along the Roscoe Ridge at the mine site, Westwater has also discovered wide spread and significant levels of vanadium mineralization.
The U.S. is 100% dependent on imports for graphite, which is the primary anode material in lithium-ion batteries that power smartphones, laptops, electric vehicles, and stores power from intermittent renewable energy sector.sources. Graphite, was specifically named as one of the critical minerals in which the U.S. is heavily dependent on China for its supply. Also, vanadium is an essential component in the manufacture of high-strength steel, is used as a catalyst in chemical manufacturing, and is also used as a component in the manufacturing of some ceramic, glass and pigment products. The U.S. imports virtually all of its industrial vanadium requirements from mines located in South Africa, China and Russia.
AlthoughIn the Order the President Trump did not agreesays, "a strong America cannot be dependent on imports from foreign adversaries for the critical minerals that uraniumare increasingly necessary to maintain our economic and military strength in the 21st century." The President said the heavy dependence on imports threatenfor critical minerals makes the U.S. vulnerable to impairadverse foreign government action, natural disaster, or other supply disruptions.
"I therefore determine that our nation's undue reliance on critical minerals, in processed or unprocessed form, from foreign adversaries constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security, foreign policy, and economy of the United States, he acknowledgedStates. I hereby declare a national emergency to deal with that threat," President Trump penned in the Executive Order.
Further details on President Trump's critical mineral Executive Order can be read at: https://www.whitehouse.gov/presidential-actions/executive-order-addressing-threat-domestic-supply-chain-reliance-critical-minerals-foreign-adversaries
Westwater is uniquely positioned to benefit from the action the U.S. government is taking to ensure that the United States uranium industry faces significant challenges in producing uranium domestically and that this is an issueits technology manufacturers can rely on a safe and secure source of national security. Accordingly,graphite to address concerns regarding the productiondrive our next generation of domestic uraniumpower and ensure a comprehensive review of the domestic nuclear supply chain,technology needs and possibly to meet needs for vanadium as well. The action by the President directed that a Nuclear Fuel Working Group be established. The Working Group will includeorders the Office of Science and Technology, the Secretary of State,Defense, the Secretary of Energy and the Secretary of Defense, among other key officials,the Interior to provide guidance to clarify which minerals and will develop recommendationsprojects are eligible for revivinggovernment support, which can include loans or grants, under Title XVII of the Energy Policy Act of 2005. Furthermore, these agencies are directed along with the Secretary of Commerce, the Administrator for the Environmental Protection Agency and the Secretary of the Army, to use all available authorities to accelerate the issuance of permits in connection with expanding and protecting the U.S. domestic nuclear fuel production (thatsupply chain for minerals such as graphite.
Westwater is uranium, conversion, enrichmentevaluating the Order and fuel fabrication). The Working Group was given 90 dayshow best to submit a reportapproach the relevant agencies in the U.S. Government to emphasize the importance of battery graphite, its importance to the President making recommendationsnation’s security, and how the Coosa Graphite Project in Alabama fits into the enactment of critical minerals policy.
Global Pandemic and our Actions to further enable domestic nuclear fuel production, which was extended by an additional 30 days on October 10, 2019 to November 10, 2019.
RECENT DEVELOPMENTS
Royalty and Promissory Note SaleEnsure Safety
On March 5, 2019,11, 2020, the World Health Organization designated COVID-19 as a global pandemic. The pandemic spread outside of China during the first quarter of 2020 and has impacted businesses throughout the world. In the U.S., many state and local governments have, based on local conditions, either recommended or mandated actions to slow the transmission of COVID-19. These measures range from limitations on crowd size, together with closures of bars and dine-in restaurants, to mandatory orders for non-essential citizens to “shelter in place” or “stay at home” until further direction. Borders between many countries have been closed to contain the spread of COVID-19. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
28
This pandemic, and the resultant uncertain economic conditions it has created, could adversely affect our operations, major facilities, or employees’ health. Westwater entered into an agreementhas the following priorities while managing business activities during this period of volatility and uncertainty:
● | First, to ensure the health and safety of employees and the communities where they work. |
● | Second, to work with business partners to maintain the advanced graphite product development schedule. |
● | Third, to ensure adequate financial liquidity to support key operations and business activities. |
Westwater’s corporate business activities are largely unaffected at this time. Even though Westwater has reduced utilization of its offices, remote working arrangements were instituted to sell four royaltiesensure that employees were able to work remotely using systems that already were in place. Westwater’s continued focus on uranium properties locatedthe health and safety of employees, the safety of operations, and the safety of the communities in which our employees live and work remains paramount. To that end, Westwater eliminated unnecessary travel, instituted health protocols for working together, and ensured that employees are permitted to take time off due to illness or the illness of those around them without penalty. As a result, our corporate business activities will continue on as before, without interruption.
During this quarter, our South Dakota, WyomingTexas employees continued to perform normal reclamation and New Mexicocompliance work activities without incident, while utilizing protocols enacted by Westwater management earlier in the year.
To the extent that the COVID-19 pandemic continues or worsens, local governments or governmental agencies may impose additional restrictions. The result of COVID-19 and those restrictions could result in a number of adverse impacts to Westwater’s business, including but not limited to additional disruption to the economy, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable. As a result, it may be challenging to obtain and process raw materials to support business needs, and individuals could become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Also, governments may impose other laws, regulations or taxes which could adversely impact Westwater’s business, financial condition or results of operations. The potential effects of COVID-19 could also impact Westwater in a number of other ways including, but not limited to, laws and regulations affecting business, the availability of future borrowings, the cost of borrowings, and potential impairment of the carrying value of long-lived tangible assets.
Payroll Protection Loan
On May 4, 2020, URI, Inc, a wholly owned subsidiary of Westwater, received loan proceeds in the amount of $0.3 million under the Paycheck Protection Program in accordance with the terms of a promissory note executed in favor of Celtic Bank Corporation, a Salt Lake City based SBA Preferred Lender. The loan and accrued interest are forgivable as long as the loan proceeds are used for eligible purposes, including payroll and benefits costs, rent and utilities. Any unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%. Payments of principal and interest are deferred until 10 months after the end of the 24-week covered period beginning on the day loan proceeds were received. URI’s covered period ended on October 19, 2020 making the first payment of any unforgiven amount due August 19, 2021.
The Company used the loan proceeds for funding its payroll and benefits costs for its South Texas operations over 10 weeks during the months of May, June and July, purposes consistent with the PPP. The deadline to apply for loan forgiveness is the maturity date of the loan, April 30, 2022. Celtic Bank is currently developing an online forgiveness application for its borrowers in 2020order to Uranium Royalty Corp.streamline the process. The Company plans to apply for $2.75 million, including $0.5 million paid at signing. On June 28, 2019, Westwater and URC entered into an amendment toloan forgiveness as soon as the agreement. The amendment extendedlender makes the date for closing under the agreement to August 30, 2019. In addition, URC delivered an additional $1,000,000 as deposit toelectronic application available. While the Company upon signingcurrently believes that its use of the amendment, increasingloan proceeds meets the total deposit to $1,500,000. The transaction closed on August 30, 2019, on which dateconditions for forgiveness of the loan, no assurance can be provided that the Company transferred ownershipwill obtain forgiveness of the royalty interests and promissory note to URCLoan, in exchange for the final paymentwhole or in part.
29
Equity Financings
Significant Capital Raise in October Pursuant to Sales Agreement with Cantor Fitzgerald
Between September 9, 2020 and October 26, 2020, the Company sold 9.5 million shares of common stock for gross proceeds of $46.9 million and net proceeds of $45.7 million pursuant to its Controlled Equity Offering Sales Agreement (”ATM Offering Agreement”) with Cantor Fitzgerald & Co. (“Cantor”). These shares were sold pursuant to two prospectus supplements filed pursuant to Rule 424(b)(5) as takedowns off the Company’s base shelf registration statement which had been declared effective by the Securities and Exchange Commission on April 13, 2020.
The receipt of net proceeds in the amount of $45.7 million from the ATM Offering Agreement combined with the receipt of net proceeds in the amount of $11.7 million from sales of common stock to Lincoln Park, as noted below, has resulted in a cash balance of approximately $53.3 million at October 31, 2020. The significant treasury balance has mitigated the Company’s capital risk through 2021 as the Company’s pilot plant program for processing battery-grade graphite and the remaining product development are now fully funded, and the Company will be able to make substantial initial investment in the commercial graphite plant in the latter half of 2021.
2020 Purchase Agreement (“PA”2020 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”)
At the Annual Shareholders Meeting conducted on April 28, 2020, the Company received shareholder approval to sell up to 8.0 million shares of common stock under the 2020 Purchase Agreement. On June 6, 2019,May 21, 2020, the Company entered into the PA2020 Purchase Agreement, as amended on May 29, 2020, with Lincoln Park to place up to $10.0$12.0 million in the aggregate of the Company’s common stock on an ongoing basis when required by the Company over a term of 24 months. Westwater will controlAs an initial purchase on May 21, 2020, Lincoln Park bought $250,000 worth of Common Stock of the timing and amountCompany at a price of any sales$1.2989 per share. The Company issued 156,250 shares of Common Stock to Lincoln Park and Lincoln Park is obligated to make purchases in accordance with the PA. Any common stock that is sold to Lincoln Park will occur at a purchase price that is based on an agreed upon fixed discount to the Company’s prevailing market prices at the time of each sale and with no upper limits to the price Lincoln Park may payas consideration for its commitment to purchase common stock. The PA may be terminated by Westwater at any time, in its sole discretion, without any additional cost or penalty.shares of Common Stock under the 2020 Purchase Agreement.
The PA specifically provides that the Company may not issue or sell any shares of its common stock under the PA if such issuance or sale would breach any applicable rules of The Nasdaq Capital Market. In particular, Nasdaq Listing Rule 5635(d) provides that the Company may not issue or sell more than 19.99% of the shares of the Company’s common stock outstanding immediately prior to the execution of the PA without shareholder approval. On August 6, 2019 the Company conducted a Special Meeting of Shareholders whereby the Company received such approval to sell up to 3,200,000 shares of common stock under the PA.
Lincoln Park has no right to require the Company to sell any shares of common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to certain conditions. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the PA if it would result in Lincoln Park beneficially owning more than 9.99% of its common stock.
Following effectiveness of an S-1 registration statement relating to the resale of the shares subject to the PA on June 18, 2019, the Company began selling shares of its common stock to Lincoln Park under the terms of the PA. During the quarter ended September 30, 2019, the Company sold 466,784 shares of common stock for gross proceeds of $1.5 million. Inception-to-date through October 31, 2019, the Company has sold 1,234,534 shares of common stock for gross
26
proceeds of $4.8 million. As of November 6, 2019, the Company has registered for resale by Lincoln Park of an additional 959,000 shares under a registration statement on Form S-1 which will be declared effective on November 7, 2019.
Stock Purchase Agreement with Lincoln Park Capital Fund, LLC. (“Lincoln Park”)
On May 24, 2019, Westwater entered into a securities purchaseregistration rights agreement as amended by Amendment No. 1 thereto dated as of May 30, 2019 (as so amended, the “Purchase Agreement”), with Lincoln Park pursuant to which the Company agreedfiled registration statements on Form S-1 with the SEC, which were declared effective on June 26, 2020 relating to issuethe resale of an initial tranche of 1,971,000 shares and sellOctober 4, 2020 relating to Lincoln Park, and Lincoln Park agreedthe resale of 3,243,000 shares. During the period from July 8, 2020 to purchase fromOctober 6, 2020, the Company (i) 104,294 shares of the Company’s common stock, par value $0.001 per share and (ii) warrants to initially purchase an aggregate of up to 182,515sold 2.8 million shares of common stock at an exercise pricefor net proceeds of $5.062 per share, for an aggregate of $550,751. On May 30, 2019, the Company issued and sold the common shares and the warrants to Lincoln Park and received aggregate gross proceeds before expenses of $550,751. The warrants will become exercisable upon the six-month anniversary of the closing date and thereafter at any time during the five-year period following such date.
Vanadium Target Identification
In late November 2018, Westwater announced the discovery of significant levels of vanadium concentrations at several locales within the graphitic schists at the Company’s Coosa Project. Westwater subsequently commenced the first of a four-phase exploration program designed to determine the extent, character and quality of the vanadiummineralization at Coosa. As announced by the Company on February 19, 2019, the first phase demonstrated widespread positive values for vanadium that extended beyond the graphite resource defined in the 2015 Preliminary Economic Assessment for the Coosa Project.
Reclamation Success in Texas
Westwater has completed wellfield plugging at the Vasquez Project and the Texas Commission on Environmental Quality has approved this phase of reclamation. This paves the way for bond releases in 2019, including the release of a surety bond posted by the Company in the amount of $208,657 as announced by the Company on March 4, 2019. Reclamation of the waste disposal well and its associated pond, as well as the remainder of the surface, is planned for completion in early 2020.
At the Rosita Project, also located in Texas, the wellfield Production Areas 1 & 2 are plugged, and surface reclamation in those areas is planned for completion in 2020.$11.7 million.
Turkish Government Taking of Temrezli and Sefaatli Licenses and Westwater’s Arbitration Filing and Proceedings
In December 2018,On January 27, 2020, Westwater filed a Request for ArbitrationClaimant’s Memorial (the “Memorial”) in its arbitration proceeding against the Republic of Turkey (“Turkey”). The Memorial relates to Westwater’s request for its unlawful actions against the Company’s investments, most notably, the June 2018 illegal taking of its licenses for the Temrezli and Şefaatli uranium projects located in the Republic of Turkey, rendering both projects worthless. These two uranium projects were owned by Westwater’s wholly-owned, indirect Turkish subsidiary Adur Madencilik Limited Sirketi (“Adur”).
Since 2007, Adur has held the exclusive rights for the exploration and development of uranium at Temrezli and Şefaatli, two sites located around 200 kilometers from Ankara, which include the largest and highest-grade deposits of uranium known to be in Turkey. Through June 2018, Adur and its shareholders had invested substantially in these two projects, using their technical expertise and carrying out extensive drilling, testing and studies to move the projects towards production. Having successfully completed the exploration stage of the uranium mining process in 2013‑2014, Adur was granted a number of exploration and operating licenses by the Turkish government to develop the Temrezli mine. As a direct result of Adur’s efforts, Temrezli became the most advanced uranium project in Turkey and it was projected to be one of the lowest cost uranium mines in the world. Experts have estimated that the Temrezli mine will generate revenues of up to $644 million over its life, netting Westwater an estimated future return on its investment of $267 million as described in the Prefeasibility Study completed for the Temrezli project in 2015.Westwater acquired Adur in late 2015 for approximately $18 million in an all-stock acquisition of Adur’s parent company, Anatolia Energy Corp.
27
For many years, Adur and Westwater worked closely with the Turkish authorities and shared their technical expertise in uranium mining. However, Turkey’s most recent actions have undermined this longstanding relationship. In particular, in June 2018, the Turkish government cancelled all of Adur’s exploration and operating licenses with retroactive effect, rendering Westwater’s investment in Adur effectively worthless. While the Turkish authorities had variously issued, renewed and overseen these licenses for more than a decade, in June 2018 they asserted that those licensed were issued by mistake and that the Turkish government has a governmental monopoly over all uranium mining activities in Turkey, in violation of Westwater’s rights under both Turkish and international law. Westwater reached out on numerous occasionsarbitration submitted to the Turkish government to resolve this dispute amicably, to reinstate the licenses and to remedy Turkey’s unlawful actions, but to no avail.
As a result, on December 13, 2018 Westwater filed a Request for Arbitration against the Republic of Turkey before the International CenterCentre for the Settlement of Investment Disputes (“ICSID”) pursuant toin December 2018 as a result of Turkey’s unlawful actions against Westwater’s investments at the TreatyTemrezli and Sefaatli uranium projects owned by Westwater’s Turkish subsidiary Adur Madencilik Limited Sirketi.
The Memorial sets forth the basis for Westwater’s claims under the treaty between the United States of America and the Republic of Turkey concerning the Reciprocal Encouragementreciprocal encouragement and Protectionprotection of Investments. investments and international law generally, as well as the basis for the jurisdiction of the tribunal constituted on May 1, 2019 following ICSID’s registration of Westwater’s request for arbitration. The Memorial also establishes the reparations owed by Turkey for breach of its international obligations towards Westwater, consisting of no less than $36.5 million, plus costs and post-award interest, as compensation for Westwater’s resulting loss of its investment. Accompanying the Memorial is an expert report regarding the reparations owed to Westwater. In determining the amount of Westwater’s loss, the expert report considered (i) the projected future cash flows from the expropriated projects, discounted to present value by a risk-adjusted discount rate, (ii) valuations from transactions for similar projects, and (iii) in the case of the Sefaatli project, the amounts invested in the project.
On March 11, 2020, Turkey filed a request to bifurcate the arbitration proceeding, and on March 30, 2020, Westwater filed a response in opposition to Turkey’s request for bifurcation. On April 28, 2020, the arbitral tribunal denied Turkey’s bifurcation request. On May 13, 2020, Turkey filed with the arbitral tribunal a request, which Westwater elected not to oppose, to extend the date on which their Counter-Memorial must be filed (and to change dates for subsequent
30
pleadings as well as document production and witness identification deadlines), which the tribunal approved on June 3, 2020. As a result of these decisions by the tribunal, Turkey filed its Counter-Memorial on September 14, 2020. The hearing on the substantive issues and damages is scheduled for September 13-17, 2021.
Additional information regarding the ICSID arbitration proceeding is presented in Part II, Item 1 below.
Reverse Stock Split
On April 22, 2019, following the close of trading, Westwater effected a one-for-fifty reverse split of its common shares. The consolidated common shares began trading on a split-adjusted basis on April 23, 2019. On April 18, 2019, at the Annual Meeting of Stockholders, the Company received approval for a charter amendment permitting Westwater to effect a reverse split. The primary purpose of the reverse split was to bring Westwater into compliance with Nasdaq’s $1.00 minimum bid price requirement to maintain Westwater’s stock listing on the Nasdaq Capital Market.
The reverse split reduced the number of Westwater’s outstanding common stock from 74,707,659 shares to 1,494,153 shares of common stock. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would have resulted were settled in cash. All share data herein has been retroactively adjusted for the reverse stock split.
RESULTS OF OPERATIONS
Summary
Our consolidated net loss for the three months ended September 30, 20192020 was $1.8$9.8 million, or $0.95$1.23 per share, as compared with a consolidated net loss of $3.1$1.8 million, or $3.07$0.95 per share for the same period in 2018.2019. The $1.3$8.0 million decreaseincrease in our consolidated net loss from the respective prior period in 2019 was primarilylargely due to the result$6.4 million net loss from discontinued operations. During the third quarter of 2020, the gain on disposal ofCompany entered into an agreement to sell its U.S. uranium assets to URCenCore in August 2019order to focus its efforts on the development of battery-grade graphite. Management believes this major strategic shift in its business model qualifies its uranium and lithium segments for treatment as discontinued operations. Accordingly, the reversalassets and related liabilities of $0.4these segments were classified as held for sale. Upon initial held for sale recognition, the carrying value of the long-lived assets belonging to these segments was compared to the assets’ fair value less costs to sell. Following this evaluation, it was determined that the $11.4 million carrying value of the property, plant and equipment belonging to the uranium segment was greater than its estimated fair value less disposal costs. As a result, an impairment loss of $5.2 million was recognized for the quarter and is included in accrued executive bonuses.the net loss from discontinued operations for the period. In addition to impairment, product development expenses related to our graphite projects has increased by $1.6 million from the same period in 2019.
OurThe factors identified above that led to the increased net loss for the third quarter of 2020 also contributed to the $7.8 million increase in our consolidated net loss for the nine months ended September 30, 2019 was $7.8 million, or $4.72 per share, as compared with a consolidated net loss of $27.0 million, or $33.98 per share for the same period in 2018. The $19.2 million decrease in our consolidated net loss2020 from the respective prior period was primarily the resultyear period. The Company’s enhanced focus on developing its graphite business and dedication of resources to that pursuit is reflective of the impairment charge$1.9 million increase in product development spending year to date 2020 compared with 2019. Likewise, the $5.5 million increase to net loss from discontinued operations for the Temrezlithree months ended September 30, 2020 is mostly comprised of the $5.2 million write down on Texas uranium property, plant and Sefaatli uranium mineral interestsequipment recognized in 2018 of $18.0 million and the gain on disposal of uranium assets to URC in 2019 of $0.7 million.
September, 2020.
2831
Mineral Property Expenses
The following table details our mineral property expenses for the three and nine months ended September 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | ||||||||||||
| | For the Three months Ended | | For the Nine months ended | ||||||||||||||||||||
|
| September 30, |
| September 30, | ||||||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| For the Three months Ended |
| For the Nine months Ended | ||||||||||||||||||||
|
| September 30, |
| September 30, | ||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| (thousands of dollars) | ||||||||||||||||||||||
Restoration/Recovery expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
Kingsville Dome project |
|
|
|
|
|
|
|
|
|
|
|
| | $ | — | | $ | — | | $ | 3 | | $ | — |
Rosita project |
| $ | 7 |
| $ | 131 |
| $ | — |
| $ | 297 | | | — | | | 7 | | | — | | | — |
Vasquez project |
|
| (8) |
|
| (51) |
|
| 69 |
|
| 50 | |
| 2 | |
| (8) | |
| 8 | |
| 69 |
Total restoration/recovery expenses |
|
| (1) |
|
| 80 |
|
| 69 |
|
| 347 | |
| 2 | |
| (1) | |
| 11 | |
| 69 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Standby care and maintenance expenses |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Kingsville Dome project |
|
| 158 |
|
| 181 |
|
| 444 |
|
| 495 | |
| 249 | |
| 158 | |
| 583 | |
| 444 |
Rosita project |
|
| 97 |
|
| 97 |
|
| 298 |
|
| 276 | |
| 118 | |
| 97 | |
| 321 | |
| 298 |
Vasquez project |
|
| 93 |
|
| 92 |
|
| 235 |
|
| 231 | |
| 92 | |
| 93 | |
| 274 | |
| 236 |
Temrezli project |
|
| — |
|
| 11 |
|
| — |
|
| 107 | ||||||||||||
Total standby care and maintenance expenses |
|
| 348 |
|
| 381 |
|
| 977 |
|
| 1,109 | |
| 459 | |
| 348 | |
| 1,178 | |
| 978 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Exploration and evaluation costs |
|
| 21 |
|
| 18 |
|
| 113 |
|
| 39 | |
| | |
| | |
| | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Coosa project | |
| — | |
| — | |
| — | |
| 58 | ||||||||||||
Other projects | | | — | | | 1 | | | — | | | 3 | ||||||||||||
Total exploration and evaluation costs | | | — | | | 1 | | | — | | | 61 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Land maintenance and holding costs |
|
| 483 |
|
| 476 |
|
| 1,150 |
|
| 1,211 | |
| 303 | |
| 484 | |
| 753 | |
| 1,150 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Total mineral property expenses |
| $ | 851 |
| $ | 955 |
| $ | 2,309 |
| $ | 2,706 | | | 764 | | | 832 | | | 1,942 | | | 2,258 |
(Less) Mineral Property expenses attributable to Discontinued Operations | | | (752) | | | (820) | | - | (1,924) | | | (2,181) | ||||||||||||
Mineral Property expenses for Continued Operations | | $ | 12 | | $ | 12 | | $ | 18 | | $ | 77 | ||||||||||||
| | | | | | | | | | | | |
For the three and nine months ended September 30, 2019,2020, mineral property expenses decreased by $0.1 million and $0.4$0.3 million from the corresponding periods during 2018. For both of the comparative periods, the decreases wereperiod in 2019. The decrease was primarily due to a reductionthe decision not to renew the leases for the lithium mineral properties in reclamation activities at the VasquezNevada and Rosita ProjectsUtah that were due to adverse weather conditions in the first half of 2019 and a reduction in operating activities at the Temrezli Project due to the revocation of the mining licenses by the government of Turkey in September 2018.August 2020.
General and Administrative Expenses
Significant expenditures for general and administrative expenses for the three and nine months ended September 30, 20192020 and 20182019 were:
| | | | | | | | | | | | | |||||||||||||
| | For the Three months ended | | For the Nine months ended | |||||||||||||||||||||
|
| September 30, |
| September 30, | |||||||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| For the Three months ended |
| For the Nine months ended |
| ||||||||||||||||||||
|
| September 30, |
| September 30, |
| ||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||||||||||||||
|
| (thousands of dollars) |
| ||||||||||||||||||||||
|
| (thousands of dollars) | |||||||||||||||||||||||
Stock compensation expense |
| $ | 239 |
| $ | 146 |
| $ | 255 |
| $ | 308 |
| | $ | 142 | | $ | 239 | | $ | 170 | | $ | 255 |
Salaries and payroll burden |
|
| 197 |
|
| 689 |
|
| 1,619 |
|
| 2,065 |
| |
| 811 | |
| 197 | |
| 2,344 | |
| 1,619 |
Legal, accounting, public company expenses |
|
| 635 |
|
| 545 |
|
| 2,105 |
|
| 1,816 |
| ||||||||||||
Legal, accounting, and public company expenses | |
| 558 | |
| 635 | |
| 1,681 | |
| 2,105 | |||||||||||||
Insurance and bank fees |
|
| 171 |
|
| 121 |
|
| 355 |
|
| 398 |
| |
| 160 | |
| 171 | |
| 494 | |
| 355 |
Consulting and professional services |
|
| 1 |
|
| 28 |
|
| 52 |
|
| 218 |
| |
| 46 | |
| 1 | |
| 149 | |
| 52 |
Office expenses |
|
| 107 |
|
| 102 |
|
| 235 |
|
| 338 |
| |
| 128 | |
| 107 | |
| 329 | |
| 235 |
Sales and Marketing |
|
| 6 |
|
| 53 |
|
| 17 |
|
| 178 |
| ||||||||||||
Sales and marketing | |
| 97 | |
| 6 | |
| 196 | |
| 17 | |||||||||||||
Other expenses |
|
| 3 |
|
| 21 |
|
| 126 |
|
| 116 |
| |
| (1) | |
| 3 | |
| 16 | |
| 126 |
Total |
| $ | 1,359 |
| $ | 1,705 |
| $ | 4,764 |
| $ | 5,437 |
| ||||||||||||
Total General and Administrative Expenses | | $ | 1,941 | | $ | 1,359 | | $ | 5,379 | | $ | 4,764 | |||||||||||||
(Less) General and Administrative Expenses attributable to Discontinued Operations | | | (405) | | | (356) | | | (1,273) | | | (1,181) | |||||||||||||
General and Administrative Expenses for Continued Operations | | $ | 1,536 | | $ | 1,003 | | $ | 4,106 | | $ | 3,583 | |||||||||||||
| | | | | | | | | | | | |
For the three months ended September 30, 2019, general and administrative charges decreased by $0.3 million compared with the corresponding period in 2018. The decrease was primarily due to the reversal of executive bonus
2932
accrualsGeneral and administrative expenses for the three and nine months ended September 30, 2020 increased by $0.5 million and $0.6 million from their respective periods in 2019. The increase was due primarily to a reversal of executive bonuses of approximately $0.4 million offset by anin 2019.
Arbitration Costs
The majority of cost in the third quarter associated with the Request for Arbitration against the Republic of Turkey was related to review and evaluation of the Republic of Turkey’s Counter-Memorial which was filed with ICSID on September 14, 2020. During the nine months ended September 30, 2020, the Company incurred arbitration related legal and expert consulting costs of $0.9 million, a $0.3 million increase over the $0.6 million of costs incurred during the same period in legal, accounting and public company expenses2019. The increase was due to financing activitiesthe significant activity in January 2020 leading up to and following the filing of the Company’s Memorial with ICSID on January 27, 2020 and costs relatedin September 2020 to review and evaluate the special shareholder meeting heldRepublic of Turkey’s Counter-Memorial. For further reference, see discussion in August 2019.the Recent Developments section of this Part I and below at Part II, Item 1.
Other Income and Expenses
For the nine months ended September 30, 2019, general and administrative charges decreased by $0.7 million compared with2020, the corresponding period in 2018. The decrease was primarily due to the reversal of executive bonus accruals of $0.4 million, a decrease in consulting expenses of $0.2 million and sales and marketing expenses of $0.2 million, primarily related to the Alabama Graphite activities in 2018, and a decrease of $0.1 million in office expenses. These decreases were offset by an increase in legal, accounting and public company expenses of $0.3 million due to financing activities, Nasdaq compliance activities, shareholder meeting costs for meetings held in April 2019 and August 2019.
Other Income and Expenses
For the three months ended September 30, 2019 the $1.0 million increase in other income compared to the three months ended September 30, 2018 was primarily due to the $0.7 million gain on sale of uranium assets to URC in August 2019, combined with the $0.4 million loss recorded in 2018 from sale of marketable securities.
For the nine months ended September 30, 2019, the $0.2 million increase in other income compared to the nine months ended September 30, 20182019 was once again primarily due to the $0.7 million gainloss on the sale of uranium assets to URCsecurities comprised of Laramide shares and warrants in Augustthe first half of 2019 offset by an increase$0.3 million of $0.2 million in loss recorded from sale of marketable securities and a decrease in interest income of $0.2 million due to a lower principal balance outstanding onfrom the Laramide promissory notenote. No such losses or interest income was recorded over the same period in 2019.2020.
FINANCIAL POSITION
Operating Activities
Net cash used in operating activities was $7.2$10.1 million for the nine months ended September 30, 2019,2020, as compared with $9.0$7.2 million for the same period in 2018.2019. The $1.8$2.9 million decreaseincrease in cash used in operating activities was primarily due to a decrease of $1.0 million of mineral propertyincreased graphite product development expenses, general and administrative expenses and acquisition relatedarbitration costs in 2019 and an increase in cash from working capital items of $1.0 million, comprised of an increase in cash from working capital items of $0.5 million in 2019 in contrast2020 compared to a decrease in working capital items of $0.5 million in 2018.2019.
Investing Activities
Net cash provided byused for investing activities was $3.8 million for the nine months ended September 30, 2019,2020 was $0.1 million for the purchase of equipment, as compared with $0.4$3.8 million of cash provided by investing activities for the nine months ended September 30, 2018.2019. For the 2019 period, the Company received noteinstallment payments on the Laramide note in the amount of $0.8 million in cash. Additionally, the Company received net proceeds of $0.5 million from the sale of Laramide securities and $2.5 million from Uranium Royalty (USA) Corp. and Uranium Royalty Corp. (together “URC”) in net proceeds fromaccordance with the saleterms of uranium assetsthe Asset Purchase Agreement signed on March 5, 2019. See Note 3 to our unaudited Condensed Consolidated Financial Statements included herewith for more information on the URC in August 2019. For the 2018 period, the Company received a note payment ontransaction and the Laramide note in the amount of $1.1 million in cash. Additionally, the Company received net proceeds of $0.8 million from the sale of Laramideand securities. These increases were partially offset by cash used for note advances to Alabama Graphite of $1.5 million.
Financing Activities
Net cash provided by financing activities was $2.6$13.9 million for the nine months ended September 30, 20192020, resulting primarily from the proceeds of sales of common stock through the Company’s Cantor ATM Offering agreement, to Lincoln Park pursuant toAgreement with Cantor Fitzgerald and the StockCompany’s 2019 Purchase Agreement and to2020 Purchase Agreement with Lincoln Park underPark. Additionally, $0.3 million was received from the Purchase Agreement.
For the nine months ended September 30, 2018, netPPP loan in May 2020. Net cash provided by financing activities for the same period in 2019 was $5.9$2.6 million. During 2018, the Company received net cash proceeds of $1.3The $11.3 million $2.9 million and $1.7 million from the sale of common stock sold throughincrease was due to greater shelf registration capacity with which to offer registered shares under the Company’s Common Stock Purchase Agreementfinancing agreement with Aspire Capital, LLC (“Aspire”), a registered direct offeringCantor and increased sales activity under the Company’s financing agreements with Lincoln Park in the first nine months of 2020 compared to Aspire and the Cantor ATM Offering agreement, respectively.
same period in 2019.
3033
LIQUIDITY AND CAPITAL RESOURCES
The interim Condensed Consolidated Financial Statements of the Company have been prepared on a “going concern” basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern because it is possible that the Company will be required to adversely change its current business plan or may be unable to meet its obligations as they become due within one year after the date that these financial statements were issued.
The Company last recorded revenues from operations in 2009 and expects to continue to incur losses as a result of costs and expenses related to maintaining its properties and general and administrative expenses.2009. Since 2009, the Company has relied on equity financings, debt financings and asset sales to fund its operations and theoperations. The Company expects to rely on these forms ofdebt and equity financing to fund its operations into the near future. The Company will also continue its cost reduction initiatives to identify ways to reduce its cash expenditures.
The Company’s currentIn 2016, the Company began to incorporate energy-related materials into its business plan. Between 2016 and 2020 the Company obtained mineral leases in Nevada and Utah and evaluated a green-fields exploration program for lithium. In 2018, the Company acquired Alabama Graphite Corp. and its Coosa Graphite Project for the purpose of developing the only commercial sized graphite mineral deposit in the contiguous United States and production of advanced graphite products for use in batteries. In the third quarter of 2020, as further discussed below and as further discussed in Note 8, the Company made the strategic decision to focus most of its resources on its graphite business, agreeing to the sale of its uranium business and discontinuing its investment in its lithium mineral properties.
As of September 30, 2020, execution of the business plan requires workingfor development of the Coosa Graphite Project was underway, with the commissioning of pilot plants for processing flake graphite into battery grade graphite products. The start-up of operations for those plants is expected to commence before the end of 2020 or shortly thereafter. The Company expects the pilot plant phase to last into mid-2021. The Company will use the data generated from the pilot plant operations to inform the requirements and specifications for building a commercial sized graphite processing facility. Pursuant to the Company’s Preliminary Economic Assessment of the Coosa Graphite Project as modified, financing required for the estimated capital expenditures to fund non-discretionaryconstruct the commercial plant is approximately $120 million. Subject to financing, the Company expects the construction phase for the commercial plant to begin in the second half of 2021 and be completed in mid-2022. The Company expects to begin generating revenues from sales of advanced graphite products from the Coosa Graphite Project in 2023.
While executing on its graphite business plan, the Company has continued to fulfill its obligation to restore and reclaim its legacy uranium properties in South Texas. These activities have resulted in expenditures for uraniumof approximately $3.5 million per year, and these reclamation activities are expected to continue for an additional 4-5 years before completion. The Company has provided $9.3 million in performance obligation bonds to the Texas Commission for Environment Quality as financial assurance related to its permits and licenses in South Texas, and has a recorded liability of approximately $6.0 million for asset retirement obligations on its balance sheet (see Note 9). In addition to its South Texas uranium operations, the Company has spent about $0.5 million to $1.0 million annually to maintain its uranium mineral property holdingholdings in New Mexico.
In furtherance of the Company’s strategic shift to graphite battery materials, on September 1, 2020 the Company entered into a Letter of Intent (“LOI”) to sell its U.S. uranium business, including its U.S. uranium exploration assets in New Mexico and idled production assets in Texas to enCore Energy Corp. (“enCore”) (see Note 8). The pending sale includes the elimination of the $9.3 million bonding liability, the elimination of the $6.0 million in asset retirement obligations, and the elimination of more than $4.0 million in annual expenditures related to reclamation and compliance costs business development costsat the Company’s Kingsville, Vasquez, and administrativeRosita sites in South Texas and its New Mexico land holding costs. The Company intendsanticipates that it will receive approximately US$2.0 million of enCore common stock and retain royalty interests on the New Mexico uranium properties as consideration for the sale. This transaction is expected to pursue project financingclose on or before December 31, 2020. The Company will retain its uranium interests in Turkey, which are subject to support execution of theongoing international arbitration proceeding. The Company’s strategic shift to focus solely on its graphite business plan, including discretionary capital expenditures associated with graphite battery-material product development, constructionalso resulted in its decision not to renew its lithium mineral leases in Nevada and Utah when the annual rentals of pilot plant facilities and construction of commercial production facilities. The Company’s current lithium business plan will be funded by working capital; however, the Company is pursuing project financing including possible joint venture partners to fund discretionary greenfield exploration activities.approximately $0.2 million came due in late August 2020.
At September 30, 20192020 the Company’s cash balances were $0.7 million and$5.5 million. During the month of October 2020, the Company hadsold 8.5 million shares of common stock for net proceeds of $50.2 million pursuant to its Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co. (“Cantor”) and its Purchase Agreement with Lincoln Park Capital LLC (“Lincoln Park”) (see Note 17). The funding provided by these financing facilities has resulted in a working capital deficitcash balance of $2.6 million. The Company’s cash balanceapproximately $53.3 million at October 31, 20192020. Management believes the significant treasury balance has mitigated the Company’s capital risk through 2021 as the Company’s 2021 non-discretionary budget, budgeted graphite pilot plant program and the remaining budgeted product development initiatives are now fully funded. The Company is $2.3 million. Subsequent
34
pursuing project financing to October 31, 2019,support primary funding of the capital expenditures for construction of the commercial plant set to occur in the second half of 2021.
Management believes the Company’s current cash balance is sufficient to fund its planned non-discretionary expenditures through 2022. In addition to pursuing other project financing, the Company expectsis evaluating the renewal of the Cantor and Lincoln Park financing facilities for use in funding any required contributions by the Company to fund operations as follows:
|
|
|
|
|
|
support project financing for construction of the commercial graphite 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 to it in amounts sufficient to meet its needs, or on terms acceptable to the Company. Stock price volatility and uncertain economic conditions caused by the COVID-19 pandemic could significantly impact the Company’s ability to raise funds through equity financing. In the event that wefunds are unablenot available for project financing to raise sufficient additional funds, wecomplete construction of the commercial facility in 2022, the Company will be able to fund its non-discretionary expenditures, however, the Company may be required to delay, reduce or severely curtailchange our operations or otherwise impede our on-goingplanned business efforts, which could have a material adverse effect on our business, operating results, financial condition, long-term prospects and ability to continue as a viable business. Considering all of the factors above, the Company believes there is substantial doubt regarding its ability to continue as a going concern.strategies.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
31
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 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, the timing or occurrence of any future drilling or production from the Company’s properties, the ability of the Company to acquire additional properties or partner with other companies, the construction of pilot plant facilities and construction of commercial production facilities, the realization of expected benefits from recent business combinations 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” 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 |
| the ability of |
| the Company’s ability to raise capital in the future; |
● | government regulation of the mining industry |
| risks associated with our operations and the operations of our partners, including the impact of COVID-19; |
● | our expectations regarding the use of funds from the Company’s PPP Loan and the potential for loan forgiveness under the terms of the PPP Loan; |
● | operating conditions at our |
| the world-wide supply and demand of graphite |
35 |
|
|
| weather conditions; |
● | 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 |
| any graphite |
| currently pending or new litigation or arbitration; |
| our ability to continue to satisfy the listing requirements of the Nasdaq Capital Market; |
● | our ability to maintain and timely receive mining and other permits from regulatory agencies. |
as well as other factors described elsewhere in this Quarterly Report on Form 10‑Q,10-Q, our 20182019 Annual Report on Form 10‑K10-K 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information in our Quarterly Reports.
32
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its filings with the Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management has recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply judgment in evaluating the Company’s controls and procedures.
During the fiscal period covered by this report, the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a‑15(e)13a-15(e) and 15d‑15(e)15d-15(e) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2019.2020.
Changes in Internal Controls
There were no changes in our internal control over financial reporting during the quarter ended September 30, 20192020 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
3336
Information regarding reportable legal proceedings is contained in Part I, Item 3, “Legal Proceedings,” in our Annual Report on Form 10‑K10-K for the year ended December 31, 2018.2019. There have been no material changes to the legal proceedings previously disclosed in the Annual Report on Form 10‑K,10-K, other than as set forth below.
Arbitration Against Turkey
On December 13, 2018, Westwater filed a Request for Arbitration against the Republic of Turkey before the International Centre for the Settlement of Investment Disputes (“ICSID”), pursuant to the Treaty between the United States of America and the Republic of Turkey concerning the Reciprocal Encouragement and Protection of Investments. The Request for Arbitration was filed as a result of the Republic of Turkey’s unlawful actions against the Company’s licenses for the Temrezli and Sefaatli uranium projects owned by Westwater’s Turkish subsidiary Adur Madencilik Limited Sirketi (“Adur”). Specifically, in June 2018, the Turkish government cancelled all of Adur’s exploration and operating licenses with retroactive effect, rendering Westwater’s investment in Adur effectively worthless. While the Turkish authorities had variously issued, renewed and overseen these licenses for more than a decade, in June 2018 they asserted that those licenses were issued by mistake and that the Turkish government has a governmental monopoly over all uranium mining activities in Turkey, in violation of Westwater’s rights under both Turkish and international law. Westwater reached out on numerous occasions to the Turkish government to resolve this dispute amicably, to reinstate the licenses and to remedy Turkey’s unlawful actions, but to no avail.
As a result, on December 13, 2018, Westwater filed before ICSID its arbitration request against the Republic of Turkey. On December 21, 2018, ICSID registered Westwater’s Request for Arbitration. On May 1, 2019, the three-member ICSID Panel for the arbitration was established – one of the panel members was selected by Westwater, another was selected by Turkey, and the third panel member (serving as the Chair) was selected by the two party-appointed arbitrators. On September 9, 2019, the ICSID Panel issued Procedural Order #1, which places the locale for the proceeding in Washington, DC, and sets numerous dates for both parties to make various filings.
On January 27, 2020, as the date for Westwater to filefiled its Memorial, which is a document that sets out Westwater’s case. The ICSID Panel setsOn March 9,11, 2020, as the date for Turkey to movefiled a request to bifurcate the arbitration proceeding, (into legal and factual issues), or alternatively sets June 15,on March 30, 2020, asWestwater filed a response in opposition to Turkey's request for bifurcation. In Procedural Order #2 issued on April 28, 2020, the arbitral tribunal denied Turkey’s bifurcation request. On May 13, 2020, Turkey filed with the arbitral tribunal a request which Westwater elected not to oppose, to extend the date on which their Counter-Memorial must be filed (and to change dates for Turkey to file its counter-Memorial. Additional dates were established insubsequent pleadings as well as document production and witness identification deadlines), which the Order that depend upon whether or not Turkey moves to bifurcate the proceeding and whether or not the ICSID Panel grants that request. A hearingarbitral tribunal approved on the merits is scheduled for May 17-21, 2021 if Turkey does not request bifurcation. If Turkey requests bifurcation and that request is deniedJune 3, 2020. As a result of these decisions by the Panel, thentribunal, Turkey filed its Counter-Memorial on September 14, 2020, and the hearing on the meritssubstantive issues and damages is scheduled for September 13-17, 2021. If Turkey requests bifurcation and that request is granted by the Panel, then a hearing on the bifurcation issues is scheduled for March 15-17, 2021.
There have been no material changes from those risk factors set forth in our yearlyAnnual Report on Form 10‑K10-K for the year ended December 31, 20182019, as updated by the risk factor set forth in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, each of which areis incorporated herein by reference.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On October 16, 2019, the Company issued 46,636 shares of its common stock to Cantor Fitzgerald & Co. (“Cantor Fitzgerald”) in satisfaction of amounts due for advisory services provided pursuant to the terms of a letter agreement (the “Cantor Agreement”), dated March 4, 2015, between the Company and Cantor Fitzgerald. Under the Cantor Agreement, Cantor Fitzgerald provided financial advisory services to the Company in connection with the Company’s sale of certain assets to Uranium Royalty (USA) Corp. and Uranium Royalty Corp (together, “URC”). Upon the closing of the transaction with URC, Cantor Fitzgerald became entitled to an advisory fee of $280,000, of which the Company paid $140,000 in cash. Cantor Fitzgerald accepted 46,636 shares in lieu of the remaining $140,000 due under the Cantor Agreement at a value of approximately $3.002 per share, which shares were issued on October 16, 2019. The shares issued under the Cantor Agreement were issued pursuant to the exemption from registration set forth in Section 4(a)(2) of the Securities Act.None
34
37
3538
| ||
Exhibit | Description | |
| |
|
| ||
31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
32.1 | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
32.2 | | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
101.INS: | | XBRL Instance Document |
| | |
101.SCH: | | XBRL Taxonomy Extension Schema Document |
| | |
101.CAL: | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.DEF: | | XBRL Taxonomy Extension Definition Linkbase Document |
| | |
101.LAB: | | XBRL Taxonomy Extension Label Linkbase Document |
| | |
101.PRE: | | XBRL Taxonomy Extension Presentation Linkbase Document |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
| WESTWATER RESOURCES, INC. | ||
|
| ||
| | ||
Dated: November | By: | /s/ Christopher M. Jones | |
| | Christopher M. Jones | |
| | President and Chief Executive Officer | |
| | | |
Dated: November | By: | /s/ Jeffrey L. Vigil | |
| | Jeffrey L. Vigil | |
| | Vice President - Finance and Chief Financial Officer |
3639