Westwater Resources, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources, Inc. first quarter 2021 results and business update conference call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Christopher Jones, President and CEO. Please go ahead, sir.

Thanks, Ariel. And this is Chris Jones. I'm the President and Chief Executive Officer of Westwater Resources. And welcome to our call. This is our Q1 results call. And joining me here today are Jeff Vigil, our CFO, and Dane McCoy, our VP Ops. On to slide two. I want to encourage everybody to read the cautionary statements. We may be referring to forward-looking information during this call. Slide three. We continue to ensure the safety of our employees in the communities where we work, and in accordance with local and CDC guidelines, we've reopened our office in Centennial. We continue to ensure that our employees are permitted and encouraged to take time off due to illness or the illness of those around them without penalty. On the slide four, we continue to work with our business partners to maintain our advanced battery graphite product development schedule. Our pilot program has now produced over 13 metric tons of battery graphite in multiple sizes over all three of our products. We continue to work to ensure adequate financial liquidity to support our key operations and business activities. We have a cash balance of $118 million as of March 31st. And Westwater continues to proceed in its case for compensation from the Republic of Turkey. Our hearing is scheduled for September 21. We are on track and we request $36.5 million plus fees. And Jeff, I'm going to turn it over to you.

Thank you, Chris. Good morning, everyone. First, let's take a look at our capital position on slide five. Our closing share price on Tuesday, March 11th was $3.88, and with approximately 32.3 million shares outstanding, our market capitalization stands at approximately 125 million. Share price began 2021 at $4.93 and ended the first quarter at $5.37. Average daily trading volume over the 61 trading days of the quarter was 8.9 million shares. During the first three months of 2021, our stock performance was largely influenced by the continued ups and downs in the capital markets due to the country's continued reaction to news about the COVID-19 pandemic and recently about inflation and supply shortages. Share prices for electric vehicle and battery material equities were boosted in February by President Biden's executive order reiterating the prior administration's declaration of a national emergency for U.S. domestic production of critical minerals, including graphite and vanadium. During the first quarter of 2021, the company utilized its ATM facility with counter Fitzgerald and its equity line of credit with Lincoln Park Capital who raised approximately $72 million from stock sales. By taking advantage of this opportunity to raise a substantial amount of cash at a low cost of capital, the company is now in a fundamentally strong position to execute its budgeted business plan through 2022, including funding for the construction of phase one of the graphite processing facility. On slide six, We provide a financial summary for the three months of March 31, 2021. Net cash used in all operating activities was $4.9 million for the quarter ended March 31, 2021, as compared with $3.5 million for the same period in 2020. The $1.4 million increase in cash used was primarily due to increased product development expenses mostly related to our battery-grade graphite pilot program, and a $300,000 increase in general administrative expenses. The increase in general administrative expenses was primarily due to increased legal and consulting expenses related to the company's KUSA graphite project. Also during the quarter, the company spent approximately $1.5 million on legal and expert consulting costs for the ICSID arbitration proceeding. The key hearing in this arbitration process is scheduled for September 2021, as Chris noted. The net loss from continuing operations was $5.4 million and $3.3 million for the three months ended March 31, 2021 and 2020, respectively. The $2.1 million increase compared to 2020 was largely the result of the increase in graphite product development costs, general administrative expenses, and arbitration costs, as noted earlier, offset by the elimination of $1.1 million in costs from discontinued operations from 2020. On March 31, 2021, the company's cash balances were approximately $118 million. The company had a working capital balance of $115 million. On May 7th, our cash balance was approximately $116 million. These cash resources will be used to fund ongoing operations, fund development of the graphite business plan, and again, provide the capital funding required to build phase one of the commercial production plan. Finally, I'd like to welcome Steve Cates to the Westwater Executive Management Team as our Chief Accounting Officer. Steve has been designated as WWR's principal counting officer. Steve is a proven financial manager whose skills and experience will be instrumental in the upcoming stage of anticipated growth and value creation at Westwater. With that, I'll turn it back to you, Chris.

And thanks, Jeff. On to slide seven. Just a reminder that our core values are simply the safety of each other. Our environment, our assets, the communities where we work, and our reputation. Second core value is cost management. Effective and efficient use of our shareholders' assets and focused on first quartile cost performance. And integrity. Highest level of performance every day. Improving our processes and conservative promises while kept. On slide eight, We are the owner of the leading graphite development property in the United States. Our pilot program has successfully produced over 13 metric tons of battery graphite using our proprietary purification process. And our definitive feasibility is underway with an expected completion in Q3 of 2021. Slide nine. Results step by step from our pilot program. We include almost 17,000 kilograms of purified material. This is the graphite material needed for battery graphite production. And this process differentiates us from all of our competitors. Spherical purified graphite production, we've produced about 4,600 kilograms as of this moment. That includes finds. On slide 10, our altered XDG production at this point is 310 kilograms of material. And purified micronized graphite, or RPMG product, almost 8,400 kilograms of material product in five sizes. The pilot program has already provided key inputs for the Dependent Feasibility Study. Again, I'm on slide 11. And more than 13,000 kilograms of products produced for testing by Westwater and our prospective customers. On slide 12. To that end, we have engaged Samuel Engineering to lead a group of engineering contractors in the United States and Germany to complete our definitive feasibility study for the KUZA project's commercial production plant. We expect this study to be complete in Q3 with a plus or minus 15% estimate of capital costs and operating expenses. On slide 13, again, our key attributes and differentiators. The proprietary technology for purifying graphite with a lighter environmental footprint, simple and robust process, and with projected costs that are competitive in the industry. We are a U.S. manufactured battery-grade graphite, giving us advantage in shipping costs as well. And with vanadium discovery on the Cruza project, we can perhaps improve project economics. There's no downside, of course, to having the vanadium on the property. And sustainability. Ours is an environmentally sustainable process, and our graphite can save over 200,000 tons a year of CO2 emissions when used in electric vehicles. On slide 14, the four battery segments where we are participating, certainly in transportation, these are the EVs, meaning electric cars and electric buses. We expect a 23% growth rate over the next 10 years. It's predominantly lithium ion batteries. And qualification cycles are between three and five years as we go forward. These qualification cycles, I want to remind everybody, are unique in our business. We pre-qualify our material when they go to our customers. Energy storage systems, and by that we really mean large, think of grid energy storage systems, We expect an 11% growth rate over the next 10 years. Again, the qualification cycles are about five years. And these are the enabling technologies for wind and solar power so that wind farms can produce electrical power when the wind does not blow and solar farms can produce power when the sun does not shine. Third market in consumer electronics. with about a 3% compounded annual growth rate, think of this as a very mature market. These are the batteries, like the laptop you may be sitting at right now and the phone that's in your hand. Many customers, many batteries, quite differentiated, many sub-segments and players. Qualification cycles tend to be in the one to three-year timeframe. And specialty markets. These are defense, aerospace, medical, Everything from pacemakers to specialty batteries for the military. A niche market, but an important market for the United States. We're developing products for all four of these markets. And on slide 15, graphite is a critical component of all types of batteries. These include lead acid batteries like that in the car you probably drove this morning. Alkaline power cells like the batteries and the flashlights and smoke detectors in the room where you sit right now, and non-rechargeable lithium ions for lithium cells. Our CSPG product is a critical component in lithium ion batteries. You might see a Tesla coming down the road, but I see 800 pounds of batteries and 200 pounds of graphite. And the United States government has defined graphite as, quote, critical to the nation's security and prosperity, unquote, and presidential executive orders, and I mean plural, ask U.S. government agencies to act with alacrity. On slide 16, the Kooza graphite project is a near-term source of domestic U.S. battery-grade graphite. Samples are being sent to potential customers. Westwater graphite will be produced using environmentally sensitive and sustainable processes in the United States. And Westwater graphite products serve all battery markets. And Westwater's vanadium discovery of KUZA could contribute revenues. Exploration is now underway. Again, our three products, Ultra PMG, That's our purified micronized graphic. That's the stuff that goes into lead-acid batteries, alkaline power cells as a conductivity enhancer. Ultradex DG is a high-performance version of that product, and it improves further conductivity in batteries. And the target markets include lithium-ion, lithium primary, and lead-acid and alkaline power cells, essentially all battery markets. And our CSPG, the ultra CSPG we're producing now, goes into high-performance lithium-ion batteries as the anode material. Remember, it's about 20% to 25% of the lithium-ion battery constituents. The target market is rapidly growing electric automobile sector. And again, when used in electric vehicles, our CSPG can save over 200,000 metric tons of CO2 emissions per year. On slide 18, a reminder that Westwater has developed a new technology for graphite purification, and we've applied for a provisional patent with the US Patent and Trademark Office for this technology. It has a more sustainable footprint than those currently used in China, where environmentally damaging and expensive to manage hydrofluoric acid is used. And our process yields prophetic carbon grade of more than 99.95%. This three-step process allows for flexible feedstock and consistent performance. Our process consists of three process steps, including costing roasting of the graphite concentrate sample, acid leaching of the roasted sample, and then thermal treatment of the sample to flash off any remaining volatiles. And on slide 19, and as Jeff said, Simply, we have raised the funding we need for Phase I construction. On slide 20, our project plan is this. Our feasibility study led by Samuel Engineering is underway for expected completion in Q3. Exploration drilling has begun for vanadium and further work in graphite deposit definition. Full-scale production is expected from purchase feedstock in 2022 producing battery-grade graphite. And Westwater expects to begin mining at the Kooza graphite deposit in Alabama beginning in 2028. On slide 22, a graphic telling you very same things for those of you that prefer graphs and calendars. On slide 22, The same team we talked about eight weeks ago with the addition of Steve Cates as Chief Accounting Officer. This team is being built, expanded, and being made more robust in real time as we develop this particular business. On page 23, simply put, experience matters. Energy minerals development and exploration requires discipline and diligent capital stewardship. We've restructured and recapitalized the company, repositioning Westwater as a green energy materials company with a laser focus on battery-grade graphite products. Our experienced management team has a demonstrated history in finance and green energy development from concept to production. And we've executed a proactive M&A program, including the sale of non-core uranium properties to redeploy capital, expanding our resource base, into green energy materials. On slide 24, why Westwater is an investment? Well, again, we have a battery-grade graphite development business with strong upside potential. Graphite has been designated a critical mineral by the United States government. We have a proven management team with experience in energy minerals development and financial management. And you should anticipate catalysts for the remainder of this year in terms of CUSA exploration results or feasibility study results and CUSA graphite project development and project milestone achievement as we go along. And with that, I'd like to open it up for questions.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. Our first question comes from Deborah Ficus of Crystal Equity Research. Please go ahead.

Thank you. Good morning and thank you for taking my questions. I wanted to ask just sort of a mop-up question to Jeff in regard to the reported arbitration expenses. Of course, there was quite a bit of work that had to be done in the first month of the year to provide a rebuttal to Turkey's response and so forth. Do you anticipate that there will be additional work of this nature, of this level, that has to be done yet in the current quarter or in the next quarter? I'm just trying to get an idea of what your cash usage might continue to be in that regard.

Yeah, that's a very good question, Debra. The process will accelerate in July and August. We'll be fairly active and prepped for the mid-September hearing. But the one thing I would note is we do have a cap on fees and So that will mitigate somewhat of the expense that we're going to incur during the upcoming Q2 and Q3. But, yes, we'll see very much some increased activity as we do the preparation for the hearing.

Okay, excellent. Thank you very much. And, of course, congratulations to your new member of your team, Mr. Cates. Do you plan on doing other or additional position creation and new hires? And if you could maybe give us, if so, could you give us an idea of what types of positions you would be adding throughout the rest of the year?

Deborah, if I may, and thanks again for your question. Between now and the end of 2022, we're going to put on 140 people. And that represents everybody from operators through management. So I would encourage you to adopt a wait and see attitude as we bring these people on. Our intention is to hire as many local people in Alabama as is possible to do. and to make sure that we have a strong management team going forward so that we can build and commission this facility with minimal complications.

Okay, thank you. And also, if I could just ask, squeeze in one more question, in regard to the timeline, the feasibility study is already underway and you're saying that it's to arrive sometime in Could you give us a hint as to whether or not you think that might be the beginning or end of Q3?

It's consistent with our messaging thus far. Basically, this is a refinement on our midyear. So, remember that the last time we spoke eight weeks ago, we were saying basically the same thing. So, as you know, feasibility studies are detailed and intense. And we want to get this one right from the start. So sometime in Q3 is our guidance for now.

Okay. And I said that was going to be the last, but I did have one other question. When you, in your press release, indicated that 13 metric tons of the battery materials had been produced or processed and that you have now a bank or an inventory of materials that you can send out for testing, do you anticipate that those will be sufficient to satisfy potential customer interest and your own testing needs? Or will you need to run the pilot process yet again before the processing facility is finally put into place next year?

That's a good question. We anticipate that these 13 tons are sufficient. Remember, these are 13 product tons. And our potential customers are looking for these a kilogram at a time. So, yeah, we anticipate that there's plenty of material there.

Excellent. Thank you.

Thank you, Debra.

Once again, if you have a question, please press star, then 1. Our next question comes from David Ball, a private investor. Please go ahead.

Hello, Chris. Good morning. I wondered if briefly you could speak about the KUSA project in terms of the mineral rights there. I'm assuming that is a lease, and if so, what is the mission of that?

Well, thanks for your question, David. The mineral rights encompass approximately 40-some thousand acres on the KUSA site itself. And they are basically with a single entity with whom we pay annual lease payments.

And what is the term or duration of that lease?

That's perpetual with five-year renewals, as I recollect.

Okay. So you feel that this could go on for, what, 30, 50, 70 years if the need was there?

Currently, we anticipate a mine life of around 30 years, and that is based on the previous estimates of the ore body and resource as it stands. We have a 10,000-foot drilling program going on literally as we speak in order to tie in other thinking around the graphite, include the vanadium, and to see if they provide a little economic boost. You know, the good news for us is there's no downside in the Canadian. It's all upside.

Thank you very much. Thank you, David.

Once again, to join the question queue, please press star, then one. Our next question is a follow-up from Deborah Ficus of Crystal Equity Research. Please go ahead.

Well, thank you for letting me add one more question. There are, of course, any number of estimates on how fast the graphite market is growing and where the demand comes from. I think Benchmark Mineral has an estimate that the demand for graphite is going to quadruple over the next eight or nine years. The investment bankers at UBS have a growth of seven times in that almost, just a little bit longer, 2030. They see that time frame. I just wondered if you have views yourself on what you think is the pace of growth in your market, your addressable market, and does it really matter? For example, if we only see a doubling of growth, do you still anticipate that there would be demand for your products?

So we don't necessarily develop an independent view, though, as you well know from doing business with us, our estimates tend to be on the conservative side. A 23% annual growth rate in the lithium ion battery market alone means that it doubles about every three years. And with that kind of growth, even if it's half, we are simply facing a rapid growth market for which the supply necessarily has not been developed. I'd really encourage you, any listener, to attend the National Academy of Sciences presentation that I'm going to give on the 17th, this coming Monday, where we discuss the graphite market purely. Not necessarily with the Westwater slant, but I was asked to opine on the graphite market, and I'd reserve my comments for that. But the differentiators for Westwater's graphite are that simply there aren't very many players here in the United States. And by the time we get the mine running, we expect to be the only fully integrated graphite supplier in the United States at all, notwithstanding a project that may be developed in Alaska. So, you know, for us, the market can grow at the rate we expect, the rate people like Goldman expect that is higher or even lower, and it's still really good for wastewater business.

Thank you.

Our next question comes from Michael Porter of Porter, Levee, and Rose. Please go ahead.

Good morning, Chris. This may be a little redundant on just what's said, but I was wondering if you all have seen any kind of news out of Washington as far as what graphite's going through, and B, there's been some additional information on the industry out about some of the car dealers going more and more into the electric cars. And I was just wondering if you're hearing any noise from any of them about, you know, asking questions about you testing the graphite or what have you.

So with regard to the customers with whom we are dealing now, they, as a matter of business, of course, ask us to keep them confidential. And, of course, we respect that. Every single carmaker on earth is building some version of an electric car now and developing their markets for the future. Electric cars' adoption rates here in the United States, remember, the United States is about a 17 million car per year market. Electric car adoption rates were 2%. of all vehicles sold in 2019, 4% of 2020, and we expect increasing sales over time. But think of it in these terms, perhaps. Even if we only get to 10%, or say even 20% of electric vehicle adoption, not the 100% that some people anticipate, but 20% adoption rates being a five-fold increase in the amount of graphite required to power that vehicle. And it's simply not being produced right now. So Westwater's positioning in the marketplace from a timing, product, and product quality standpoint could not be better.

This concludes the question and answer session. I would like to turn the conference back over to Christopher Jones for any closing remarks.

Thanks, Ariel, and thanks, everybody, for spending part of your morning with us and listening to our story. We encourage you to visit our website, www.westwater.net, for further information, and also encourage you to attend the National Academy of Sciences presentation on the 17th of this month. Thanks once again, and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Thank you.