Westwater Resources, Inc. (NYSE: WWR) is an energy technology and battery-grade natural graphite development company poised to play a pivotal role in reducing the United States' reliance on foreign imports of critical minerals. With its strategic assets in Alabama, Westwater is positioning itself as a key domestic producer of high-purity graphite for the burgeoning electric vehicle (EV) and energy storage markets.
Business Overview and Company History
Westwater Resources was originally incorporated in 1977 and has evolved over the years to focus on the development and production of battery-grade natural graphite. The company's primary assets include the Kellyton Graphite Plant, currently under construction in Coosa County, Alabama, and the Coosa Graphite Deposit, a mineral resource located in the same region.
In 2019, Westwater made a strategic shift to capitalize on the growing demand for critical minerals, particularly graphite, which is a crucial component in lithium-ion batteries used in EVs and energy storage systems. The company acquired Alabama Graphite Corporation, providing it with the Coosa Graphite Deposit and the necessary expertise to develop battery-grade graphite products.
Westwater's Kellyton Graphite Plant, once operational, is expected to produce 12,500 metric tons per year of coated spherical purified graphite (CSPG) in its initial Phase I. The company has secured several offtake agreements, including with electric vehicle manufacturer FCA US LLC and battery developer SK On, ensuring a stable customer base for its high-purity graphite products.
The company has a long history in the energy and mining industry, with a focus on critical minerals. In 2009, Westwater last recorded revenue from operations, signaling a shift in its business towards development-stage projects. Since then, the company has relied on equity and debt financings, as well as asset sales, to fund its operations as it has not recorded revenue. This has led to periods of financial uncertainty and the need to carefully manage cash flows and expenditures.
As a mining and materials company, Westwater has had to ensure compliance with relevant environmental and safety regulations across its various projects and locations. Operational challenges have included optimizing processes, managing construction activities, and maintaining its research and development capabilities.
In 2021, the company completed an Initial Assessment with an economic analysis for its Coosa Graphite Deposit project in Alabama, providing valuable information about the potential of this asset. Westwater has also constructed and continues to operate a research and development laboratory, allowing it to further product development and quality control.
Financials and Liquidity
As of September 30, 2024, Westwater reported a cash balance of $4.54 million. The company has relied on equity and debt financing, as well as asset sales, to fund its operations and the construction of the Kellyton Graphite Plant. During the nine months ended September 30, 2024, Westwater sold 2.3 million shares of common stock for net proceeds of $1.1 million under an at-the-market (ATM) offering agreement, and an additional 0.4 million shares for $0.1 million under a new ATM agreement with H.C. Wainwright.
In August 2024, Westwater entered into a $30 million purchase agreement with Lincoln Park Capital, which provides the company with additional flexibility to access capital markets as needed. Additionally, in September 2024, the company announced that it had executed a term sheet and agreed to exclusivity with a global financial institution for a $150 million secured debt facility, which would be used to complete the construction of Phase I of the Kellyton Graphite Plant.
Westwater's net loss for the nine months ended September 30, 2024, was $9.8 million, or $0.17 per share, compared to a net loss of $9.5 million, or $0.19 per share, for the same period in 2023. The increase in net loss was primarily due to a loss on the sale of raw material inventory and lower interest income, partially offset by a decrease in product development and exploration expenses.
For the most recent fiscal year (2023), Westwater reported no revenue, a net loss of $7,751,000, operating cash flow of -$11,430,000, and free cash flow of -$69,725,000. In the most recent quarter (Q3 2024), the company again reported no revenue, with a net loss of $3,108,000, operating cash flow of $1,421,000, and free cash flow of $357,000. The company does not break out performance by geographic markets, as it is currently focused solely on the U.S. market.
As of September 30, 2024, Westwater's debt-to-equity ratio was 0.002, with $4,540,000 in cash on hand. The company's current ratio and quick ratio were both 0.60. The potential $150 million secured debt facility, subject to final terms and conditions, would significantly improve the company's liquidity position if secured.
Operational Highlights and Strategic Partnerships
During the third quarter of 2024, Westwater continued to make progress on the Kellyton Graphite Plant construction, lowering the estimated cost of Phase I to $245 million, down from the previous estimate of $271 million. This 9.6% reduction in estimated costs was primarily due to savings from further design optimization and reductions in steel, piping, and equipment installation expenses. The company now estimates that approximately $124 million will be required to complete Phase I of the Kellyton Graphite Plant.
The company also announced the execution of a binding offtake agreement with Hiller Carbon, LLC, a leading supplier of pelletized materials to the steel and foundry industries. Under the agreement, Westwater will supply its natural graphite fines material, a byproduct of the CSPG production process, to Hiller Carbon's plants located within the United States.
In July 2024, Westwater entered into an offtake agreement with FCA US LLC, an electric vehicle manufacturer and part of the Stellantis group of companies. Under the terms of the agreement, FCA will be obligated to purchase CSPG natural graphite anode products from Westwater's Kellyton Graphite Plant. Earlier in 2024, the company also signed a procurement agreement with SK On, a leading electric vehicle battery developer and manufacturer, to supply CSPG products from the Kellyton Graphite Plant.
Westwater has two primary product segments: the Kellyton Graphite Plant and the Coosa Graphite Deposit. The Kellyton Graphite Plant, once operational, will process natural flake graphite to produce CSPG and graphite fines as a byproduct. The Coosa Graphite Deposit, for which Westwater holds mineral rights across 41,970 acres of the Alabama graphite belt, is expected to eventually provide natural graphite flake concentrate to the Kellyton Graphite Plant.
In the first quarter of 2024, Westwater commenced a strategic financing review process for the Coosa Graphite Deposit, seeking to identify investment sources and partners for this asset. The company completed an Initial Assessment with an economic analysis for the Coosa Graphite Deposit in the fourth quarter of 2023, disclosing Mineral Resources in accordance with S-K 1300.
Regulatory and Geopolitical Landscape
The U.S. government has recognized the strategic importance of domestic production of critical minerals, including graphite, for the nation's economic and national security. In March 2022, President Biden invoked the Defense Production Act to encourage the domestic production of critical materials, including graphite, for advanced batteries. Additionally, the Inflation Reduction Act, signed into law in August 2022, provides a 10% tax credit for the costs of producing certain critical minerals, including graphite.
Furthermore, the Treasury Department's final regulations related to the Clean Vehicle Tax Credit, effective in 2025, prohibit battery parts and critical minerals from being sourced from "foreign entities of concern," which includes China. This regulatory environment presents a significant opportunity for Westwater, as the company aims to become a reliable domestic supplier of high-purity graphite anode materials for the U.S. electric vehicle and energy storage industries.
Risks and Challenges
Westwater's success is heavily dependent on its ability to secure the necessary financing to complete the construction of the Kellyton Graphite Plant. While the company has made progress in securing additional funding, including the potential $150 million debt facility, there is no assurance that it will be able to obtain the required capital on favorable terms or at all.
The company also faces risks related to the successful commissioning and operation of the Kellyton Graphite Plant, as well as the timely development of the Coosa Graphite Deposit to provide a reliable supply of raw materials. Any delays or cost overruns in these critical projects could significantly impact Westwater's ability to meet its production targets and fulfill its customer commitments.
Additionally, the graphite market is subject to fluctuations in global supply and demand, as well as geopolitical tensions that could disrupt trade flows. Westwater's ability to maintain a competitive edge and navigate these market dynamics will be crucial to its long-term success.
Conclusion
Westwater Resources is poised to play a pivotal role in the growing U.S. critical minerals sector, particularly in the production of battery-grade graphite. With its strategic assets in Alabama and a strong customer base, the company is well-positioned to capitalize on the increasing demand for domestic sources of graphite driven by the surge in electric vehicle and energy storage technologies.
While Westwater faces challenges in securing the necessary financing and successfully executing its operational plans, the company's progress in reducing construction costs and securing offtake agreements demonstrates its ability to adapt and navigate the evolving market landscape. As the U.S. government continues to prioritize the development of domestic critical mineral supplies, Westwater's role as a reliable and sustainable producer of high-purity graphite products could prove invaluable in the years to come.
The company's focus on developing domestic battery-grade graphite production aligns well with current U.S. government initiatives to reduce reliance on imports, particularly from China. As Westwater continues to develop its Kellyton Graphite Plant and explore the potential of the Coosa Graphite Deposit, it remains at the forefront of the emerging domestic graphite industry, poised to meet the growing demand for this critical mineral in the clean energy transition.