Westwater Resources, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources Inc. Q2 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 1 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 Chris Jones, President and CEO. Please go ahead, sir.

Thank you, Charisse, and thank you to everyone for taking the time today to join us. Joining me today on the call is Jeff Vigil, our CFO, and I'd like to introduce Steve Cates, our Chief Accounting Officer. On slide two, note the cautionary statements. We invite you to read them at your leisure. We will be talking about some forward-looking information today. Turning to slide three, ensuring the safety of our employees. To ensure the safety and health of our employees and 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. Turning to slide four, ensuring the health and growth of our business. Our pilot program has produced a total of over 13 metric tons of battery graphite. We have secured the site for our intended processing facility near Kellyton, Alabama. together with the financial incentives from the state, county, and industrial development boards. And we continue to work to ensure adequate financial liquidity to support our key operations and business activities. To that end, we have a cash balance of $119 million as of June 3. And Westwater is continuing to proceed in its case for compensation for the Republic of Turkey. Our hearing is scheduled for the middle of September, and we request $36.5 million plus fees. With that, I'd like to turn it over to Jeff Vigil, our CFO. Jeff?

Thank you, Chris. Good morning, everyone. First, let's take a look at our capital position on slide five. Closing share price on Tuesday, August 10th was $4.36. And with approximately 33.5 million shares outstanding at June 30, our market capitalization stands at about 146 million. Share price began the second quarter at $5.37 and ended the second quarter at $4.74. The average daily trading volume over the 63 trading days of the second quarter was 1.8 million shares. We're happy to report that effective June 28th, 2021. Westwater common stock was added to the Russell micro cap index. During the second quarter of 2021, the company utilizes equity line with Lincoln Park capital to raise approximately 5.7 million from stock sales. With our current cash balance. And our availability on our financial facilities, we continue to take advantage. of the opportunity to raise cash and put us in a fundamentally strong position to execute our budgeted business plan through 2022. And this also allows us to make a substantial initial investment in the commercial graphite processing facility that we recently announced to be built in Coosa County, Alabama in the latter half of 2021. On slide six, we provide a financial summary for the period into June 30, 2021. The six months into June 30, net cash use in all operating activities was $9.1 million, as compared with $6 million for the same period in 2020. $3.1 million increase in cash use was primarily due to increased product development expenses, exploration activities, general administrative costs, and arbitration costs in 2021. But that loss from continuing operations was $3.5 million and $2.5 million for the three months into June 30, 2021 and 2020, respectively. The $1 million increase compared to 2020 was largely the result, again, of the increase of product development expenses, expiration, and general administrative costs, set partially by the elimination of costs from discontinued uranium operations and in 2020, and an unrealized gain related to the Encore common stock. On June 30, 2021, the company's cash balances were approximately $119 million. The company had a working capital balance of $117 million. Again, with these cash resources, we will use to fund ongoing operations, fund development of our graphite business plan, And again, allows a substantial investment in our commercial processing facility. With that, I'll turn it back to you, Chris.

Thanks, Jeff. And on slide seven, a reminder about Westwater's core values. First of all, safety. And that's of each other, our environment, our assets, the communities where we work, and our reputation. Secondly, cost. and cost management, effective and efficient use of our shareholders' assets, and a focus on first quartile cost performance. And third, integrity, the highest level of performance every day, improving our processes, and importantly, conservative promises, well kept. On slide eight, it's all about executing our business plan. Our feasibility study inputs, primarily from the pilot plant, provided all kinds of key inputs for this DFS. Study results are on time for Q3 delivery. We've produced more than 13,000 kilograms of products for testing by Westwater and prospective customers, and samples are in prospective customers' hands as we speak. On slide nine, we selected a site near Kellyton, Alabama for our processing plant. And on June 22nd, community leaders from the state of Alabama, including Governor Kay Ivey and Secretary of Commerce Greg Canfield, Coosa County, Alexander City, and the Lake Martin Industrial Development Board celebrated the unveiling of our project site. with the Westwater and Alabama graphite projects team. There's a photo of many of those participants there at the site where we intend to build this site, this facility. On slide 10, an aerial picture of that site includes in the red circled area where we plan on building the majority of the plant to be as it comes out of its design process, again, as a result of the definitive It's in Cusa County, about 30 miles or minutes from our Cusa graphite deposit, really on the other end of the county. These government agencies, including the county, the municipality, and the state, offered more than $34 million in incentives for us to site that facility there. We entered into a public-private partnership with the city of Alexander City in order to upgrade and extend their wastewater line so that we can put our wastewater directly into their waste treatment facility. $400,000 of cash was for that public-private partnership, and we added $100,000 worth of prepaid treatment expense in order to facilitate this partnership. Note that we leased the site. for up to 10 years with an option to purchase for a dollar a year or thereabouts, and essentially got the land for free. And once again, with all these incentives, it is a terrific business opportunity for Westwater and a great business opportunity for the citizens of Coosa County in Alabama. On slide 11, our Coosa Graphite project key attribute include a proprietary technology for purification. It's a high-purity conversion process that results in a 99.95% carbon product. It is simple, and it is robust. And a cost advantage. Our products do not go on the water. They can be delivered to sites right here in the United States, and if needed, shipped over to Europe and Asia. And a Venetian discovery a couple of years ago on our project site in western Coos County for the depositors potentially improves project economics. And we utilize a sustainable process, an environmentally sustainable process where we manage the inputs and outputs. And our graphite can save over 200,000 tons a year of CO2 emissions when used in electric vehicles. On slide 12, a little bit about battery markets. Transportation is clearly the largest growth market for our products, at a 23% growth rate expected over the next 10 years. It's predominantly lithium-ion batteries. You think of the battery in two parts. There's an anode and a cathode. There is about 25% of the material in a lithium-ion battery that is graphite on the anode side.

And here over the last week or so, the U.S.

government and domestic automakers have announced a goal that over 50% of all autos sold here in the United States will be electric vehicles by not 2050, as it says here, but 2030. That's a 17-fold increase in the amount of cars sold as electric vehicles and the commensurate 17-fold increase in the demand for graphite. This is a very exciting development for our business. In other areas of battery growth, 11% growth rates expected in energy storage systems. Think of these as grid storage systems. And these are the enabling technologies for wind and solar power. Consumer electronics, a large and mature market for lithium ion batteries at 3% annual growth rate. And other specialty battery markets from defense and other military and government applications. On slide 13, graphite is a critical component of all types of batteries, including lead acid, alkaline power cells, and non-rechargeable lithium ion cells. Or lithium cells, I'm sorry. The coated purified spherical graphite is a critical component in lithium ion batteries, where the real big growth story is for our product. And the United States government has defined graphite as, quote, critical to the nation's security and prosperity. And presidential executive orders over the last two administrations asked U.S. government agencies to act with alacrity. And again, this week's announcement of a drive by the United States government and domestic car makers to drive sales of these fees up from 3% of current automobiles on the market to 50% is great for our business. This puts our CSPG product front and center as a critical material in future source supply. On slide 14, the Kooza graphite project is a near-term source of domestic U.S. battery-grade graphite. Samples are being sent to potential customers. Westwaters graphite will be produced using environmentally sustainable processes right here in the United States, where we have a robust regulatory environment for helping us to manage that process. And Westwaters graphite products serve important battery markets. And again, our vanadium discovery at KUZA could contribute revenues, and exploration is currently underway. On slide 15. We've developed a new technology for graphite purification, and we filed a provisional patent application with the US Patent and Trademark Office for this technology. Our methodology has a more sustainable footprint than those currently used in China, where environmentally damaging and expensive to manage hydrofluoric acid is used. And it yields graphitic carbon grade of more than 99.95%. The process allows for flexible feedstock with consistent overall performance. Our process consists of three basic process steps, including one, the caustic roasting of the graphite concentrate sample, acid leaching of that roasted sample, and a thermal finish of that sample to remove the remaining impurities. On slide 16. Westwater's feasibility study, led by Samuel Engineering, is underway for expected completion in Q3. Exploration drilling has begun and continues, not only for vanadium, but also to further define the graphite content of the Kooza graphite deposit. Full-scale production is expected from purchased feedstock producing battery-grade graphite, and Westwater expects to begin mining at the Kooza graphite deposit in Alabama. beginning in about 2028. On slide 17, a bit of a graphic to support the verbiage in the previous slide. Commercial production starting in 2023, U.S.-based feedstock in 2028, and our purchased graphite in order to get this plant up and running quicker in the meantime.

Purchased from a non-Chinese graphite source.

On slide 18, our team continues to grow with tenured leaders in energy minerals development. Previously, we've announced the addition of Chad Potter as our chief operating officer, and he is based in Alabama. In order to grow that business, Steve Cates is here on phone call with us today as our chief accounting officer. As the team grows, so does our experience based in project execution, and battery materials with over two centuries of experience currently contained on this executive team. On slide 19, experience matters. Energy minerals exploration and development requires discipline and diligent capital stewardship. We've restructured and recapitalized this company, positioning Westwater as a green energy materials company with a laser focus on battery-grade graphite products. Experience management team with a demonstrated history in finance and green energy development from concept to production aids this particular development effort. Turning to slide 20, why Westwater is an investment? We have a battery-grade graphite development business with strong upside potential. Graphite has been designated a critical mineral by the United States government, and again, recent tailwind, in terms of announcements from the United States government and carmakers, increase interest in our products. And we have a proven management team with experience in energy and minerals development and financial management. And looking forward into 2021, you should expect further results on the KUZA exploration project. You should expect to see results from our definitive feasibility study. And you should see KUZA Graphite project development milestones as we achieve them like those that we've already achieved in terms of site selection and state and local support for our project. And with that, I'd like to turn it over to questions. Cherise?

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one 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 two. We will pause for a moment as callers join the queue. The first question comes from Deborah Fiacas with Crystal Equity Research. Please go ahead.

Thank you very much. Thank you for taking my questions and congratulations on having achieved a site selection. I imagine that the good folks in Alabama are quite pleased to see that sign go up. No surprise then that they were prepared to give you a welcoming gift. $36 million is a nice welcome gift. Maybe this is a question for Jeff in regard to how those tax credits and incentives are going to show up. Are any of them cash incentives or is this more or less a matter of reducing future expenses like reducing a future tax bill or something like that? Maybe you could give us a little more color on how those will work.

We'd be happy to do that, Deborah. That's a great question. The majority of the incentives we received are future benefits, a reduction in cost, if you want to say, not a cash payment. And in three different buckets, one bucket is reduction of a sales tax during the construction phase. The second bucket is a reduction of property taxes for non-educational purposes for a 10-year period. And then the last is the from the state of Alabama is an investment tax credit, a fairly substantial amount over the course of the project or of the operations of the business. It's a state credit, so obviously it will come into play at the time that the company generates taxable income at the state level. That's the nature of the incentives.

Excellent. Thank you. And then just another question about the site itself. It was very good to see that picture in the aerial view. Does the site itself there in that industrial development area have any particular implications for the environmental permitting that you required? Is it a positive, a negative? Will you be required to install any kind of special or private access roads, or can you use the access roads that are there?

Good question, Debra. And in kind of reverse order, the roads that are there, we can feel free to use. And also remember that there is land that is across the creek, you know, towards the top of the page. in that red circle that requires a bridge basically to be built. That is being built by the industrial board with some state support. So the short version is the roads that exist and the roads to be are free for our use. The site itself is developed as an industrial park and as such has no special permitting requirements. But remember that we will still be required by the state and other agencies to make sure that our air and water are properly managed so that we can provide that sustainable footprint for the development of that site. But remember that permitting an industrial facility in an industrial park is far, far different. And frankly, far easier than permitting a mine. And we are in the process of getting acquainted with and getting involved with the Alabama Department of Environmental Management, we call them ADEM, to begin that process just as soon as we know precisely what those outputs and inputs are.

Excellent. Thank you. Now, of course, we've heard quite a bit from you already about the pilot project and the various products that you were able to produce. You had mentioned in the past, and I think it is, again, repeated in your quarter report, that they've been sent for testing the final product so you can tell how they perform, and also that the... the precursor for the really especially fancy materials, the CPSG, that has been sent for coding. And I wondered if you could maybe give us a little bit of an update on how that testing has proceeded and is there anything new that you can tell us about today and also whether or not we'll read about that testing when you get your final feasibility study published here in the next two or three months.

You bet you'll read about it. We're pretty excited about it.

Coding is underway right now, the product. Can't remember the rate at which we are coding right now, but it's certainly beyond bench level, pilot scale level coding processes. So, no results yet to come on that particular bit. With regard to samples out for test, both at our independent lab and at several customers, potential customers. Right now, they're examining and looking at this material. It's a very exciting time that way. All of that testing with regard to potential customers takes place under non-disclosure agreements, which really benefit our customers and us in a lot of different ways. So specifics wish we could but can't really discuss. But we're very excited about the progress we've made over these three months, over these six months in developing these products. Does that answer your question?

Yes, it does. Now, are any of the tests that you're contemplating of the sort that you've commissioned them yourselves and you could disclose the results?

Good question, and yes, that sort of testing, once it comes back from our independent lab, that'll be part of our package that we develop for introducing our product to new customers, and there's no reason to keep that a secret in large part.

Okay, and then I'll make one last question. This is in regard to uranium. I know you're not in the uranium business anymore, but we have one final piece of business, and that is in regard to the dispute with the government of the Republic of Turkey. You mentioned in your opening remarks that you have a mid-September date to move forward with your arbitration against the Republic of Turkey. Do you have a date certain, or is that mid-September time simply a goal set down by the arbitration panel?

We have dates certain for testimony, so we will be in Washington giving our testimony and receiving theirs the week of the 13th. The way the calendar works is testimony is done on Friday of that week. And then from there, the arbitration panel deliberates for upwards of a year. And there's potential for some back and forth on clarification or whatever else, but the year is really pretty standard in their deliberative process for rendering a decision.

All right. Very good. Thank you.

Thank you, Debra.

The next question comes from Dan Murchison with Lake Mitchell Home Owners Association. Please go ahead.

Yes, hello, and thank you for the invite. My question is a local thing for the Lake Mitchell area. Your water withdrawal for washing, can you tell us exactly where that then comes from? And if I understand it correctly, that your discharge is going through the Alexander plant there before it goes back And does the water go back into Lake Martin or does it come into Lake Mitchell or where your discharge is? And what about tree removal? Can you kind of go through that and tell us if any of your tree removal is in the Forever Wildland area there?

You bet, and thank you for your question and interest.

And again, in reverse order, none of the tree removal we intend on any level is going to be in the Forever Wild area as it applies to our site development for the processing facility near Kellyton. With regard to our intake and discharge water, your questions are good. The city of Alexander City is providing both our fresh water and our discharge. And my understanding of the water treatment plant in Alexander City is that it discharges into Lake Martin. And that answers the three questions.

Do you have any others?

Is that your discharge going back into Lake Martin, or where does your discharge go?

Our discharge goes to the Lake Martin Water Treatment Plant, which I believe discharges into Lake Martin.

Okay. And do you have a set time that you could just estimate your... Your factory operation will be operational?

Our schedule indicates that construction starts before the end of this year and operations start in 2023. Those are important pieces and parts of the definitive feasibility study that we are doing right now and is expected for completion here in quarter three. So I'd have to answer that with more to come.

Okay. The tree removal for the mining operation, what is your reclamation program just roughly consist of?

We haven't yet designed the mine, and we'll be doing so over these next six years. And in doing so, there will be points of process along the way where public comment will be invited and our documents will be produced. So I'd ask you to give us that time to properly prepare the design for the mineral operations yet to go. And for now, we are firmly and laser beam focused, in fact, on building this processing facility.

OK. Thank you very much for your questions, and good luck with your operation.

Certainly, and thank you for asking them. We appreciate it.

The next question comes from Gerard Naito with Naito Investments. Please go ahead.

Gerard, your line is now open.

The next question comes from Barbara Cole with Hargrove Engineering. Please go ahead.

Yes, thank you. And what an exciting project for Alabama right there on beautiful Lake Martin. My question is more geared towards the project execution phase. Hargrove Engineers and Constructors is a large EPCM company headquartered in Mobile, Alabama with offices throughout the state. And my question is, what is your plan proceeding forward in the execution phase with the receipt of the conceptual engineering due here this quarter?

As it applies to an APCM, what we expect to have in our hands during this quarter is all of the parameters, inputs, outputs, and information we need to go ahead and evaluate the economics of the project. So more to come there, followed by detailed engineering as we go along. As it applies to an EPCM, we would expect to have requests for proposals going out here in the next couple of months for your project. hopefully quick and accurate evaluation as we go forward. So pretty exciting time for us on our end as we finish up the basic engineering of this project.

So I'd say hang tight.

OK, another quick question. Do you have a strategy for involvement of Alabama companies in the phases going forward?

The answer is absolutely and positively. We are excited about doing business in Alabama. We are excited about the capabilities, not just the state and municipal agencies have, but across the board in industrial activity. And to that end, where we can and should, we will be partnering with local Alabama and other companies.

Very good. Thank you very much.

Thank you.

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

Thank you, Cherise, and thank you all for your questions today. We really appreciate your interest in our project and the interest in our business. And thanks to everyone for taking your time and attention with us today. We wish you all a safe and great day. Thanks again.

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