Westwater Resources, Inc. (NYSE:WWR) is an energy technology company focused on developing battery-grade natural graphite materials through its two primary projects, the Kellyton Graphite Plant and the Coosa Graphite Deposit, both located in Coosa County, Alabama. The company's strategic positioning and recent milestones have positioned it to capitalize on the growing demand for domestically sourced, IRA-compliant graphite materials.
Business Overview
Westwater's (NYSE:WWR) Kellyton Graphite Plant is designed to process natural flake graphite and produce 12,500 metric tons (mt) per year of Coated Spherical Purified Graphite (CSPG) in Phase I, primarily for use in lithium-ion batteries. The company's second project, the Coosa Graphite Deposit, is located approximately 30 miles from the Kellyton Plant and is expected to eventually provide natural graphite flake concentrate to the Kellyton facility. This vertical integration positions Westwater (NYSE:WWR) to become the first U.S.-based, U.S.-domiciled producer of battery-grade graphite.
Significant Milestones and Operational Updates
Over the past year, Westwater (NYSE:WWR) has achieved several key milestones. In the first quarter of 2024, the company signed its first multi-year offtake agreement with SK On, a Tier 1 lithium-ion battery manufacturer. This agreement, which ramps up to 10,000 mt per year in the final year, is the result of strong collaboration between Westwater (NYSE:WWR) and SK On pursuant to a joint development agreement signed in 2023.
Additionally, Westwater (NYSE:WWR) completed a debottlenecking study that increased the anticipated CSPG production for Phase I of the Kellyton Graphite Plant by 67% to 12,500 mt per year, while maintaining the previously communicated $271 million capital budget. The company has also started the feasibility study for Phase II of the Kellyton Plant, which is expected to increase the combined CSPG production to 50,000 mt per year.
Regarding the Coosa Graphite Deposit, Westwater (NYSE:WWR) completed an Initial Assessment (IA) with an economic analysis in the fourth quarter of 2023. The IA indicates an estimated pre-tax net present value (NPV) of approximately $229 million and an estimated pre-tax internal rate of return (IRR) of 26.7% for the deposit.
Graphite Market Dynamics and Regulatory Tailwinds
Graphite is an essential mineral for lithium-ion batteries, accounting for approximately 50% of the critical minerals by weight in a typical electric vehicle battery. The U.S. currently lacks a domestic supply chain for battery-grade graphite products and is predominantly reliant on imports from China. Recent Chinese export controls on graphite have highlighted the critical need for domestic battery-grade graphite production in the U.S.
The U.S. government's designation of graphite as a critical mineral, along with the Inflation Reduction Act (IRA) and the proposed guidance on foreign entities of concern (FEOC), provide significant tailwinds for Westwater's (NYSE:WWR) business. The IRA offers a 10% tax credit for the costs of producing certain critical minerals, including graphite, and sets minimum domestic content thresholds for the value of critical minerals in electric vehicle batteries. Additionally, the proposed FEOC guidance, which identifies China as a FEOC, means that starting in 2025, electric vehicles with batteries containing any critical minerals extracted, processed, or recycled by a FEOC will be ineligible for the $7,500 federal electric vehicle tax credit.
Financial Performance and Liquidity
For the full year 2023, Westwater (NYSE:WWR) reported a net loss of $7.8 million, or $0.15 per share, compared to a net loss of $11.1 million, or $0.25 per share, in 2022. The company's annual revenue remained at $0, as it continues to focus on the development of its graphite projects. Operating cash flow for 2023 was negative $11.4 million, while free cash flow was negative $69.7 million, reflecting the significant investments in the Kellyton Graphite Plant construction.
As of March 31, 2024, Westwater (NYSE:WWR) had a cash balance of $6.1 million. The company has continued construction activities related to Phase I of the Kellyton Graphite Plant, though at a reduced pace, as it works to secure the additional $150 million in financing needed to complete the project. Westwater (NYSE:WWR) is currently engaged in discussions with several entities regarding the financing of the Kellyton Graphite Plant and is seeking strategic investment for the advancement of the Coosa Graphite Deposit.
Risks and Challenges
Westwater's (NYSE:WWR) ability to execute its business plan is subject to various risks and challenges, including the availability of financing, the ability to secure additional offtake agreements, the successful construction and operation of the Kellyton Graphite Plant, and the development of the Coosa Graphite Deposit. The company's access to the equity capital markets may be limited by the terms of its existing registration statement and the volatility in the broader markets.
Outlook and Conclusion
Westwater's (NYSE:WWR) positioning as a domestic leader in battery-grade graphite production, its recent operational milestones, and the favorable market and regulatory dynamics provide a compelling investment thesis. The company's first offtake agreement with SK On, the increased production capacity at the Kellyton Graphite Plant, and the promising economics of the Coosa Graphite Deposit demonstrate Westwater's (NYSE:WWR) progress in capitalizing on the growing demand for domestically sourced, IRA-compliant graphite materials. As Westwater (NYSE:WWR) continues to navigate the financing and construction of its projects, investors will closely monitor the company's ability to execute its strategy and maintain its early-mover advantage in the U.S. graphite market.