Westwater Resources, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Westwater Resources, Inc. full year 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 Frank Bakker, President and CEO. Please go ahead, sir.

Thank you, moderator, and thanks to those attending our 2022 year-end business update and results call. I'm excited to lead the company and to have this first earnings call since becoming the CEO of Westwater Resources. With me today is Terence Kryan, our Executive Chairman of the Board, and Steve Gates, our Chief Financial Officer. During this presentation, the forward-looking statements we make are based on management judgments, including, but not limited to, future graphite demand and price forecasts, schedule and cost projections, and economic expectations related to the Callington Graphite Plant. the GUSA graphite deposit, and capital raising activities. These and other similar statements are subject to certain risks and uncertainties of which a description can be found on slide 2 within this presentation and in our 10-K for 2022 and our other SEC filings. Please read our cautionary statement and realize that actual results may differ materially from what's discussed today. Slide 3. Construction of phase one of our Calentan graphite processing plant has been ongoing for over a year. When completed, the Calentan graphite processing plant will provide anode material necessary to support the energy transition. Interest from potential customers is strong and samples continue to be requested. Recently, Westwater Resources entered into an agreement with an electric vehicle battery producer. Under the agreement, the two companies will work together to ensure that the CSPG expected to be produced at our Calentan plant can be used as a high-performance anode for their batteries. Subject to those efforts and terms and conditions yet to be negotiated in a future agreement, this agreement allows for the sale of potentially all anode material from our Calentan plant for those batteries. This is another significant step advancement in our graphite business and our engagement with potential customers, and we are anticipating making a joint announcement with our partner later this month. At that time, we expect to be in position to provide further details. We also hold mineral rights to approximately 42,000 acres across the Alabama Graphite Belt. Once in operations, The Calpton graphite processing plant and the GUSA deposit represents the first fully vertically integrated domestic battery-grade graphite company in the U.S. We believe this will provide significant competitive advantages given the passing of the Inflation Reduction Act in 2022 with its domestic content requirements for electric vehicle battery materials. Turning to slide 4. In response to growing demand and customer feedback to increase our plant production capacity, we are pleased to announce that we have completed an optimization study of the Gallatin Graphite Processing Plant, which we believe will significantly improve the economics of the project. As a result, we now expect to double our throughput capacity in Phase 1 to approximately 16,000 metric tons per annum. and more than doubling our estimated CSBG production to 7,500 metric tons per year. The higher throughput results in an expected increase in the estimated pre-tax NPV compared to the original DFS of over three times, to $470 million, and an increase in the estimated cumulative pre-tax cash flow to $1.9 billion. and an increase in the estimated pre-tax IRR of 65% to 24.7%. With the optimization, we now estimate the total cost of Phase 1 to be approximately $271 million. We expect to begin testing and commissioning of Phase 1 in late 2023, and first production to occur in the first half of 2024. subject to closing the additional funding to complete construction. Additionally, we expect to spend the additional capital necessary for the Phase 1 optimization in 2024 and are targeting completion of this optimization and increasing the throughput in the second half of 2024. Slide 5. We also have incorporated the optimization of Phase 2 at the pre-feasibility level. increasing the planned CSBG production to approximately 40,500 metric tons per year, nearly tripling the expected pre-tax NPV to $2.2 billion, and increasing the estimated cumulative pre-tax cash flow to $10.3 billion, and the estimated IRR to 36.3%. The total combined cost of Phase I and Phase II is currently estimated at at $736 million. We plan to begin a definitive feasibility study on the Phase 2 expansion in 2023 and will provide an update once completed. Turning to slide 6 for a construction progress update. Since the beginning of construction at our Calenton graphite project in late 2021, we have had zero recordable safety incidents by our contractors and Westward teammates. This is a significant accomplishment. Safety is and will continue to be our number one core value, as well as the protection of the environment where we live and operate. During 2022, we completed the earthwork, the building foundations and the majority of the underground utilities. Significant progress has been made on the buildings. Two of the major buildings are close to being finished. and the other three buildings will be completed in March-April of this year. Long lead equipment started to arrive at site and we will start putting the equipment in place in March of this year. Regarding our GUSA graphite deposit on slide 7. In April 2022 we completed our exploration drilling program and completed our geological model and published a technical report in the fourth quarter. which identified about 3.8 million short tons of graphite, enough to supply the estimated feedstock requirements for a Calenton graphite processing plant for over 35 years. It's worth noting that a technical report was completed based on drilling approximately 4,100 acres of the approximately 42,000 acres to which we hold mineral rights. We continue to expect the CUSA deposit to come online by the end of 2028, subject to its own definitive feasibility study, obtaining the requirement permits and financing. I am extremely proud of the Westwater team, our contractors, the dedication and hard work of all involved to make Westwater Resources successful. Now I would like to turn it over to our Chief Financial Officer, Mr. Steve Gates. Thank you, Frank, and good morning, everyone.

Slide 8. Westwater finished the year with a cash balance of $75.2 million and no debt. Our strong financial position has allowed us to continue to advance our graphite business, including the construction of Phase 1 of the Kellyton Graphite Processing Plant. Regarding financing, we are pleased to announce that we have assigned a non-binding, non-exclusive indicative term sheet for $150 million of private debt. which will cover the balance of the current estimated Phase 1 capital requirements. We are targeting to close on this transaction in the second quarter of this year. Since beginning construction, cash expenditures totaled approximately $55 million related to the Phase 1 construction, and we estimate approximately $260 million of cash spend remaining of the now estimated total cost of $271 million, which includes the Phase 1 optimization. Turning to the financial summary on slide 9, detailed discussion of these items is included in our recently filed Form 10-K, as well as our 2022 year-end press release. Net cash used in all operating activities for 2022 was approximately $13.2 million, as compared with $16.9 million for 2021. The $3.7 million decrease in cash used for our operations was primarily due to reduced product development expenses and lower costs related to our arbitration against the Republic of Turkey. Those decreases were offset partially by the gain recognized on the sale of equity securities in 2021 and the purchase of feedstock inventory in the fourth quarter ahead of beginning testing and commissioning later this year and to produce additional product samples for our customers. Cash used in investing activities for 2022 totaled $52.8 million, and was related to the ongoing construction of phase one of the Kellyton Graphite Processing Plant. As mentioned previously, product development cost decreased 4.8 million during the current year. In 2021, we incurred costs to complete our definitive feasibility study for phase one and our pilot program. We continue to operate our pilot program to provide additional samples of our battery grade products for shipment to and evaluation by potential customers. Lastly, net loss for 2022 was $11.1 million, or $0.25 per share, compared to a net loss of $16.1 million, or $0.49 per share, in 2021. The $5 million reduction in net loss was due primarily to lower product development and arbitration costs and higher interest income earned on our cash balances. These were partially offset by higher G&A expenses as we continued to build out our team. and the absence of the gain recognized in the fourth quarter of 2021 related to equity securities held by Westwater that we received in 2020 with the final sale of our former uranium business. With that, I'll turn the call back to you, operator, for questions. Thank you.

Thank you. We will now begin the question-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 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. First, let me offer congratulations to Frank Bacher for his new position. I wish you well in your new role. I first off wanted to ask about the optimization plan that you disclosed today. What triggered the study to optimize the plant? What was the impetus to make some tweaks and pinches to the process?

Yeah, thank you, Deborah, for the question. So I think there were two main reasons. The first reason was that there is an increased demand of CSPG material in the domestic market in the US. And the second reason is that if you look at the IRR before we made this optimization and after the optimization, the IRR increased from 15% to close to 25%. So that's also the other reason why we did the optimization. And it's good to know that on the optimization, we didn't change the technology, actually. We only rerouted the process flows and removed the bottlenecks in the facility.

Excellent. That actually was my next question, is what is the means of the optimization? If it's just the process flows, are you still going to be working with the same set of equipment that you had previously planned on using? Do you have to add equipment? Is that part of the cost increase?

Yes, you're correct. So we're only going to reroute the process flows. We're going to use the existing equipment. And we need to add additional equipment to reach that capacity. That's correct.

Then I wanted to move on to the cost increase. You mentioned in the annual filing that the added costs really arise from, in part, the optimization changes, as well as there was a hint at delays and cost overruns and then maybe some price increases due to inflation. I just wondered if you could give us a little bit of color on the relative contribution of each of those three sources. Are the cost increases principally the optimization changes, plan or what part of it did the delays and cost overruns play?

Yeah, I think it's mainly the optimization project that has driven the increase. And of course, with the optimization project, because what we announced is that we want to start commissioning end of this year, then start producing material in the first half of next year. and then continue increased production in the second half. So we also have a little bit longer duration to get to full capacity related to this optimization. And that also drives, because when your project takes longer, yeah, you have more cost, of course.

Certainly. Can you confirm that the project is still on its original schedule, or has it been pushed back somewhat?

It's in line with what was announced in the last call, so we start commissioning end of this year. For one building, we have all the steel in, the equipment is arriving as we speak, so the building is finished, so we're going to start setting that equipment, and then we start testing and commissioning end of this year.

Excellent. Now, I noted also that With the increase in the amount of CPSG production that is possible, the CPSG throughput that's going to be possible with the optimization plan, I just wanted to confirm what the planned product mix is. Your annual report also mentions SPG fines, you know, spherical purified graphite fines. And I wondered where is PMG in the new mix under the optimization plan?

Yeah, so we have the option actually to also make purified fines, but it really depends on the economics of if you're going to do it. Because most likely the CSBG product will have a higher margin, so we'll focus on the CSBG production.

Okay. And I don't mean to monopolize the call. I just have one last question. This is in regard to the new development agreement. that you announced today with a battery manufacturer that's producing EV batteries. Is this entity, and I know that you can't name them, I understand that, is this entity been discussed, is it among the five LOIs that have been previously announced, or is it an entirely new entity that you've not discussed before in any press release or conference call?

Yeah, we're planning to make a joint announcement with our partner later this month, and at that time we are in a position to provide further details.

Do those details include a name?

Yes, at the time it will include a name. That's correct.

All right, very good. I do have additional questions, but I'm going to bow out and just get back in the queue. I'll allow others to ask additional questions. Thank you for your answers. I appreciate it.

Thank you.

The next question comes from Dimitri Silverstein with Water Tower Research. Please go ahead.

Good morning, gentlemen. Thank you for taking my call. Congratulations on the very positive developments here with both increased production of Phase I and Phase II and the signing of the agreement with the Tier I battery manufacturer. Just a couple of questions to clarify. When you talk about this new agreement and your potential customer taking potentially all of CSPG, by all do you mean the 3,700 metric tons that was originally targeted as phase one production or the 7,500 metric tons that will be the CSPG production run rate once you complete the improvements by the end of 24?

Yeah, those details will be provided in the joint announcement that we will make with our partner.

Okay, Frank, fair enough. But, I mean, okay, so at least 3,700 metric tons and then maybe more, sounds like. Okay. Secondly, on the, you know, on the increase in the production of Phase I. So it sounds like your Phase I basically is now going to be – produce as much material or process as much material and produce as much material as you originally targeted for your phase two. So you've more than doubled, as you mentioned, your phase one production. It does not look like a significantly higher incremental cost versus the original budget of a little bit over 200 million. So I guess the question is, if it's that, I wouldn't say easy, but if you can increase, if you could double the production by just adding a little bit more CapEx for phase one, Can your phase two become much bigger if needed, given what we kind of learned about phase one and how much production capacity can increase by adding a little bit more capital?

Yes, I think you're correct. Because phase two is, if you look at the IRR of phase two, what we calculated, it's around 35, 36%. And the capacity in phase two, total capacity of the facility will be 40,500 metric tons per year. And the approach we took is a modular approach. So for a lot of different units in the facility, it's a copy-paste. There is one unit that we need to optimize when we go to phase two. But for a big part of the facility, it's modular. So it's really like a copy-paste. So it makes life pretty easy, actually.

OK. It's possible then that for not much more than $736 million that you're looking to spend for phase one and phase two, you have the ability in your current footprint to increase the phase two production if demand continues to remain strong and customer interest continues to remain strong.

Yes, that's correct. Yes, we have enough footprint over there to increase our capacity.

Okay, great. And then just one final question, just to make sure I understand. So you complete the construction and testing and ramp up at the end of 23. You get into production at the beginning of 24. And then you talk about sort of finishing the optimization by the end of 24. So does that mean that your initial production will be kind of at the 15,000 metric ton run rate? I'm sorry, 7,500 metric ton run rate. And then by the end of 2024, you're going to get to 60,000 metric ton run rate. Is that the way to think about it?

Yeah, so we're going to continue. Well, we're going to start commissioning end of this year. That commissioning effort will continue in the beginning of next year, 2024. Then during the first half, we'll start producing graphite. And then slowly over the year, we'll ramp up to our full capacity.

Okay. Okay. That's all the questions I have. Thank you for your time. Okay.

Thank you.

And the next question comes from Deborah Fiacas with Crystal Equity Research. Please go ahead.

Oh, thank you. I didn't expect to come around on the queue quite so quickly. This question might be more for Steve Cates, if you will, Steve. you talked about the financing agreement or the non-binding term sheet. And I just wondered if you could give us a little bit of color on how far along you are in these negotiations. Have you gotten enough details so that you, for example, can model an interest rate? Is it fixed? Is it variable? Have you discussed repayment terms? And do you have an idea then of what

the cash flow impact would be of the interest and principal repayments yes Debra so it is an indicative term sheet so there are those aspects in that as far as a coupon rate repayment terms but all that's still subject to going through the processes you're probably well aware until we get to closing and negotiating kind of the final terms and seeing if pricing moves at all so While we do have that and have modeled that in, we're not in a position yet until we actually sign the definitive agreement closing the transaction to communicate that to the market. But we'll do so when we close.

Certainly. And when you mention an investment bank is involved, are they intending to make the loan themselves or are they acting as an intermediary and putting a syndicate together? Just kind of clarify what their role is.

Yeah, I don't believe we ever said that it's an investment bank, but this is a third party that has closed billions of dollars of transactions over the past couple of decades within the energy sector of debt, and that's who we're working with and going through the process to close. And so there will be a lot more to update once we're able to close this.

So they're making the loan themselves, this third party?

We'll remain to be seen when we get to the final negotiation on whether it ends up being a single party or a couple parties involved. And so we're working through that right now.

Okay. And I also did notice that the final decision was made by the arbitration panel in regard to the Turkey dispute and that they awarded Westwater $1.3 million. I wondered if you could maybe describe to us what will be You know, what is it that you're looking for that makes it, you know, more certain to you, more probable than not that you're going to get the money and that you can begin to reflect this decision on the books? I suppose the earliest that we could see anything would be in March. But if you could just kind of walk us through what to expect next in that regard.

Deborah, this is . Go ahead, Terry. Thanks for your question. Appreciate that. The decision by the arbitration tribunal was only announced on Friday. And so I think it's a little early for us to be definitive about that. And I think that while we're pleased that the tribunal found in our favor on the merits, obviously we're disappointed in the amount of but I would note that the decision of the tribunal is binding and non-appealable.

Yes, understood. That's what arbitration is all about. And then this last final question is again for Frank. I wondered if you could maybe go back to the timeline that's been outlined for the CUSA graphite deposit. It's been pushed out now to 2028. We sort of jump out to in two-year increments with this. Could you maybe sort of give us an idea of what is the strategic thinking in pushing it out another two years? I'm not sure if this was done recently or a couple months ago, but it has been pushed out to 2-28. What's the driving strategy behind that timeline, if you will? And then that is my last question, and I do so thank all of you for all of your answers.

Yeah, thank you. Yeah, so the timeline has not been pushed out. So it has always been 2028 for the mine to be operational. So we continue, we have a program in place to get all the permits in place, to do all the research, all the things needed to get it operational in 2028.

As there are no further questions, this concludes the question-answer session. I would like to turn the conference back over to Frank Bacher for any closing remarks.

Thank you. I think we've made a tremendous amount of progress over the last couple of months. We doubled our production capacity of Phase I, increased our Phase II capacity to 40,500 metric tons per year, By doing this, we improved the project economics significantly. Next to this, we executed the term sheet for the Phase 1 capital requirements. So I think the future looks bright for Westwater Resources. I want to thank everybody for their attention and looking forward to speaking to you on the next call. Thank you.

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