Westwater Resources, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources, Inc. first quarter 2022 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 Chad Potter, President and CEO. Please go ahead, sir.

Thank you. And thank you for all attending our first quarter 2022 results call. accounting officer. Slide 2, during this presentation, the forward-looking statements we will be making are based off management's judgment, including projections related to Kellyton's graphite plant and the Cusick graphite deposit. These statements are subject to certain risks and uncertainties, a description which can be found on page 2 in this presentation. Our 10-K for 2021 and our actual results may differ materially from what may be discussed today. On to page three. Why Westwater is an investment. Westwater is an energy technology company focused on producing battery-grade natural graphite materials for advanced batteries here in the United States. We're using a patent-pending proprietary purification process. We made a lot of progress during the first quarter. in March, hiring our various general contractors and other contractors. We continued the process of ordering long lead time equipment and the build-out and completion of our administration's offices in April. Also in April, we hosted a ceremony of groundbreaking at our Peloton facility, which was attended by the governor of Alabama and other state, local, and federal officials. In April, we completed the exploration drilling program at our Coosa Graphite deposit, and we expect our geological model to be completed by the end of the year. Slide four. I'd like to turn it over to our Chief Financial Officer, Mr. Jeff Vigil.

Thank you, Chad. Good morning, everyone. First, let's take a look at our capital position on slide four. Our closing share price on Wednesday, May 4th was $1.37, and with approximately 47.2 million shares outstanding, our market capitalization stands at approximately 65 million. Our average daily trading volume over the past three months was approximately 3.2 million shares per day. Our share price began the quarter at $2.15 and ended the quarter at $2.00. We believe investors have taken a more cautious approach to Westwater as we embark on the construction of our graphite processing facility in Alabama and the large capital expenditures associated therewith. We finished the first quarter with a cash balance of $116 million and a working capital balance of approximately $109 million. During the first quarter, the company utilized its ATM facility with Cameron Fitzgerald and to raise approximately $16 million from stock sales. In April 2022, we raised an additional $9 million from ATM stock sales. Our working capital balance and zero debt provide us with the ability to continue to move the construction of Phase I of the Kellerton Graphite Plant forward. Since beginning the construction of Phase I, we have incurred $17.8 million of the estimated total cost of $202 million. Our two financing facilities with Cantor and Lincoln Park provide the company with an opportunity to raise cash at a low cost of capital and may be used in the future to support the company's business plan in 2022. However, management is currently engaged in the process of identifying additional or alternative sources of low-cost capital funding, which potentially could include project-level debt offtake agreements, loan and grant programs provided by the U.S. Department of Energy, a strategic partner, or a combination of these. Turning to slide five, we provide a financial summary for the quarter ended March 31, 2022. Net cash used in all operating activities was $2.7 million for the quarter, as compared with $4.8 million for the same period in 2021. 2.1 million decrease in cash used was primarily due to reduced product development expenses and arbitration costs. Product development costs for the three months ended March 31, 2022 decreased 1.6 million compared to the same period in 2021. The costs incurred for the first quarter of 2022 were related to continued product optimization costs, while the prior year period was impacted by expenses related to our DFS report for the Kellyton plant and the company's pilot program, both which were completed in the second half of 2021. General administrative expenses for the three months ended March 31, 2022, increased by $100,000 from the prior year period. The increase year over year is due primarily to increased payroll costs as the company continues to build out its team and to invest in sales and marketing. Net loss from continuing operations for the three months ended March 31, 2022, was $2.8 million, or $0.08 per share, compared to a net loss of $5.4 million, or $0.19 per share, for the same period in 2021. $2.6 million reduction in net loss is due primarily to decreased product development expenses and arbitration costs. And with that, I'll turn it back to you, Chad. Thank you, Jeff.

On to slide six, ensuring the health and growth of our business. We continue to, with construction of our graphite processing plant, as well as the exploration and modeling of our crucigraphite deposit. Also, we are continuing to work to ensure the adequate financial liquidity to support our key operations and business activities. To reiterate, Mr. Vigil's comments, we have a cash balance of $116 million in zero debt. Also, we were active. We were active discussions on a range of alternative sources of additional capital necessary to complete phase one of the Kellison Graphite Processing Plan with a focus on securing low-cost capital available. Graphite's a major component of all batteries, batteries which lead acid, alkaline power cells, and non-rechargeable lithium cells. Coated, purified spherical graphite is a critical component of lithium ion batteries. And the US government has defined graphite as critical to national security and to prosperity. And the White House has invoked the Defense Production Act. And recently, the Department of Energy funding opportunity announcement allocated $3.1 billion to expand the advanced battery manufacturing capabilities in the U.S. Slide eight. A typical lithium ion battery contains considerably more graphite than lithium. Approximately half of all lithium ion battery cells is made up of graphite, as depicted on the graph on the screen. A typical electric vehicle contains approximately 200 pounds of anode graphite. Slide 9. Battery markets, they continue to grow, and graphite is a critical component, as outlined in the previous slide, slide 8. The EV sector of the market is expected to grow at a 24% compound annual growth rate. It will drive demand for lithium-ion batteries in the future. GSPG is a principal product, what makes up the anode and lithium-ion batteries. The demand for battery storage sector. Battery storage is enabling technology, preventing renewable energy technologies such as wind and solar, enabling power to be stored and then released during periods of peak demand. Other sectors, such as consumer electronics and defense, will provide additional markets for our grab bike materials. On to slide 10. As you can see on this slide, our Kellotson graphite processing plant is scheduled to be completed in 2023. And our Coosa graphite mining project is anticipated to begin in 2028. We've taken a different approach here by developing our processing plant first, then bringing our graphite mining project in expected around 2028. This approach has a lower upfront capital cost and a faster path to revenue cash flow. And if you risk the timeline in permitting at the KUSA deposit, as we have third-party non-Chinese sources of natural graphite, until the production of our graphite from our KUSA deposit comes online in around 2028. This will vertically integrate our operations, providing long-term security of supply to our processing facility. On to slide 11. Our focus of graphite processing is easily understood It sells for around $1,000 a ton in the CSPG, which sells for approximately $9,000 per ton, resulting in value multiplier of approximately nine times. On to slide 12. This slide tells you exactly why we went all in on developing advanced graphite materials. The blue bottom section represents existing and projected Chinese anode material production. The yellow section represents expected non-Chinese anode material supply, and the dotted segment represents required new anode material capacity needed to meet demand. The U.S. is currently 100% dependent on foreign imports of advanced graphite materials, with 85% of global output coming from China. Our Kellyton Process plant is expected to be the first of its kind in the United States. Our proprietary purification technology, Westwater has developed a new technology for graphite purification. We have filed a provisional patent application with the U.S. Patent and Trademark Office for this technology. It has a more sustainable footprint than currently used in China, where environmentally damaging and expensive to manage hydrofluoric acid is used. This process yields graphitic carbon of more than 99.95%. allows for flexible feedstock and consistent performance. Consist of three steps, including caustic roasting of the graphite concentrate sample, acid leaching, and thermal treatment of the sample. On to slide 14. In 2021, we purchased two buildings comprised of 90,000 square feet of warehouse and office space immediately adjacent to the plant site. These two buildings were purchased on very favorable terms and really jumpstarted our development at the Kellington We expect the plan to be completed at the end of the second quarter of 2023. We're currently on time and on budget and have ordered long lead time items such as our first in late 2021. While construction is underway, we have samples from our pilot plant in the hands of our prospective customers undergoing customer review and testing. This position is ideally to announce customer LOIs advance commencing operations next year. On to slide 15. MACUSA graphite deposit is a source of domestic U.S. natural graphite. The exploration drilling to further define the graphite deposit is completed and geological modeling is expected by the end of 2022. Westwater's vanadium discovery at its deposit could contribute to the revenues. Better grade graphite products will initially be produced from a non-Chinese source in a natural clay graphite until the KUSA graphite deposit is developed. Our graphite processing plant and our KUSA graphite deposit together represent the first fully integrated battery grade graphite project in the United States. On to slide 16. This is a slide that represents our leadership team. Proud to join as the CEO in February. This team represents highly experienced individuals, both from the mining, financial sector, as well as those that have experience in high leadership roles. I'm very proud to be part of this team and the experience that they represent. Looking forward to the future with them. On to slide 17. Westwater is proud of the strong culture we have built and our commitment to safety in ESG. Every meeting at our company starts with a safety share. We are committed to environmental stewardship and manufacturing practices, which are environmentally superior to a majority of the existing CSPG manufacturing processes in the world. We have a proprietary graphite purification process. industry-leading low-carbon footprint, which we think customers will increasingly demand. We are committed to being trustworthy stewards of our shareholders' company and have developed a gender-balanced board of directors made up entirely of mid-career C-suite executives. In closing, this is an exciting time for Westwater Resources, and we appreciate your interest in our company. The team and I will now take questions that you may have Operator back to you for questions. Thank you very much.

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, than two. We will pause for a moment as callers join the queue. The first question comes from Deborah Fiakas with Crystal Equity Research.

Please go ahead. Thank you, operator, and thank you, gentlemen, for taking my questions. I think most of them are numbers related, so I'm putting Jeff in the hot seat first. I appreciate your disclosure that you've spent $17.8 million out of the $202 million budget for the graphite processing plant project. I also noted in your filing that you had added $17.1 million to construction and progress to the balance sheet, and I wanted to sort of get an idea of how we relate the two. Is it Is it going to tat over like that as you go along in executing on your budget? Will we see the numbers pretty much equal between what you've spent and construction and progress?

Hi, Debra. That's a very good question. Folks, go ahead.

This is Terrence Cryen, Debra. Appreciate your question. Appreciate you joining us this morning. I'm actually going to direct this one and put the spotlight on Steve Gates.

Okay.

Hi, Deborah. Thanks for joining. Yes, those over time will line up. Really, the difference between the 17.1 and the 17.8 incurred really had to do with some year-end accruals that were already in CIP at 1231. mostly related to some of our engineering work, as well as the build-out of the administrative offices, which, as Chad mentioned, were completed in April of this year.

Okay. And then a follow-up along those same lines. The capital expenditures that were reported in the first quarter were $12.1 million. And can I assume or can we assume that that capital expenditure was principally part of this construction project? in progress and then therefore also a part of what you've worked off the project plan as well?

Yes, so the 12.1, to your point, that is all related to our Kellyton processing facility and the construction, and that's the actual cash spend. The 17.8 is what we've incurred, which includes amounts that remain unpaid at period end.

Got it. Got it. And then in an unrelated question, I was wondering, you had the company held its annual meeting yesterday, and I wondered if the results are now available. Can we know? Did everybody get elected?

So, Deborah, I'm happy to report that, yes, all of the resolutions on our proxy statement passed, and we will be filing an 8K and a press release with those details today.

And the other proposals were accepted as well?

All proposals passed.

Okay. And this is more of a forward question. Again, it is numbers related, but I kind of wondered if, as in the first quarter, we don't really see a whole lot of the construction project effects in the operating expenses. Can we kind of expect that to be the case going forward that that most of what is going on in that $202 million budget now with 17.8 of it worked off, that we're really not going to see that at the operating line. That's mostly going to be going on in CapEx and construction in progress.

Steve?

Yes, Deborah, you are correct. The vast, vast majority, substantially all of the 202 you will see

um as capex and running through our construction and progress line until we get through commissioning thank you i might have a couple more questions but i'll um i'll let go for right now and allow someone else to to question you thank you once again if you have a question please press star then one the next question comes from

David Eidelman with Eidelman Verit Capital. Please go ahead.

Yes. My question concerned the ATM. I was surprised at how much the share count went up, and I'm concerned going forward that there will be too much dilution, especially with the stock at this price. And I wondered if you could comment on what the future plans are for selling shares in you know, somewhere around this price. And second of all, how you plan to raise the extra funds to complete the plan once you go through the current cash on hand. Thank you.

Thank you, David. Appreciate you joining us today. Steve, would you like to field that?

Sure. Yeah. David, you know, as we said in the prepared remarks that we have engaged in the process of identifying alternative and additional sources of capital. And our focus is on obtaining the lowest cost of capital that is available to us. And so we are in the middle of that process, having discussions with the type of counterparties one would expect as part of that, and hope to be able to update more as we progress through that Regarding the ATM sales in the current period, you know, it did provide, as Jeff said, the ability to raise some funds at a low cost of capital. And as you know, that recently the Fed Chair had raised some rates, about half a point. And so, there was an opportunity there to be diligent and raise some additional funds at a low cost. But again, we are interested and seeking additional sources of low-cost capital, but have nothing more to report at this time.

In other words, you can't comment on whether you would continue to sell shares near the current price?

All I can really reiterate is that we're in process of seeking additional low-cost capital. I don't, we have to get through this process of identifying and seeking that additional financing. And so right now, I can't say whether or not we would or would not be. They're available to us, but we are highly interested in identifying those other forms of low-cost capital.

Okay. Could you comment on what some of those could possibly be?

Sure. I think You know, with our balance sheet with $116 million of cash and no debt, it does provide an opportunity, we believe, and some optionality to not only move the project forward and continue to make a cash investment, but look at something that's maybe more along the lines of traditional project debt financing. As Chad mentioned in the prepared remarks, there's the funding opportunity announcement, which allocates $3.1 billion of grants to increase battery production capabilities in the US. And we are closely monitoring those and looking at those types of facilities or programs to determine what benefit, if any, there is to Westwater and its shareholders and whether we'd be able to participate in those.

I see. Thank you.

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

Thank you, Cherise. I'd like to first thank all of our teammates for their continued focus on safety and the environment. Also, I'd like to thank all those of you who are listening and your interest in wastewater resources. Thank you all 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.