Westwater Resources Inc (NYSE-A:WWR) revealed it has entered into an agreement with a tier 1 battery manufacturer for electric vehicles (EV), alongside the publication of its full-year results for 2022 and plans to increase production capacity at the Kellyton graphite processing plant.
Under the agreement, the parties will work together to ensure that the Coated Spherical Purified Graphite (CSPG) that is expected to be produced at the Kellyton plant can be used as a high-performance anode material for the customer’s batteries.
Subject to those efforts, the parties expect to negotiate another agreement that will allow for the sale of potentially all graphite anode material from the Kellyton plant for those batteries, Westwater said.
“Following the passage of the Inflation Reduction Act, many battery manufacturers have sought to secure North American anode material. We are pleased to be part of that solution and believe this agreement is a significant step in the process,” said Terence Cryan, Westwater’s executive chairman in a statement.
READ: Westwater Resources gets new CEO in Frank Bakker, makes two more significant appointments
“We are excited by the continued progress being made in our engagement with potential customers, and this agreement, and 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," he added.
Westwater also announced that in response to increasing customer demand and strong market conditions for CSPG, it has optimized the original Definitive Feasibility Study (DFS) to increase the expected throughput for phase I of the Kellyton graphite plant which also results in associated capital and operating efficiencies.
The total phase I capital requirements for the Kellyton graphite plant are expected to be approximately $271 million, resulting in:
- More than doubling the expected annual production of CSPG to 7,500 metric tons and total annual production across all products to 16,000 metric tons;
- More than tripling the expected pre-tax net present value (NPV) to approximately $417 million (at an 8% discount rate);
- Nearly tripling the total estimated cumulative pre-tax cash flows to $1.9 billion over a project life of 35 years;
- Increasing the phase I estimated internal rate of return (IRR), on a pre-tax basis, from 15.0% to 24.7%, a 65% increase.
In addition, Westwater is increasing the planned production capacity for its phase II expansion of the Kellyton plant. Prepared at a pre-feasibility level, the phase II expansion is subject to its own DFS and securing the necessary funding.
The estimated capital costs for both phase I and phase II are estimated to be $736 million, resulting in:
- More than doubling the expected annual production of CSPG to 40,500 metric tons and total annual production across all products to 86,500 metric tons;
- Nearly tripling the expected pre-tax NPV to approximately $2.2 billion (at an 8% discount rate);
- Total estimated cumulative pre-tax cash flows to increase by a factor of nearly three to $10.3 billion over a project life of 35 years;
- Increasing the estimated IRR, on a pre-tax basis, from 20.5% to approximately 36.3%, a 77% increase.
“Great work by the Westwater team has resulted in significant improvements to the project economics for the Kellyton graphite plant,” said Frank Bakker, the company's president and CEO. “We expect to begin testing and commissioning at the plant in late 2023, and first production from phase I is expected in the first half of 2024, subject to closing on the additional funding needed to complete construction.
“Additionally, we expect to complete the phase I optimization in the second half of 2024. We believe that increasing our production capacity will allow us to position Westwater to play a more significant role in the domestic battery-grade graphite market," he added.
Construction financing update
Westwater also announced that it has signed a non-binding, non-exclusive indicative term sheet for $150 million of private debt, which would cover the balance of the phase I capital requirements and is targeting to close in the second quarter.
“We finished the year with a cash balance of $75.2 million and a working capital balance of $51.0 million,” said Steve Cates, CFO and senior vice president of finance at Westwater.
“Since beginning construction of phase I of the Kellyton graphite plant in the fourth quarter of 2021, we have incurred approximately $76.4 million of costs, which is comprised of $55.3 million in cash outflows and the remainder included in the company’s working capital liabilities as of December 31, 2022," he added.
Results for the year to December 31, 2022
- Net cash used in operations decreased $3.7 million in 2022 compared to 2021, due primarily to lower product development expenses, arbitration costs, and exploration expenses;
- Net cash used in investing activities of $52.8 million relates to construction spend for phase I of the Kellyton graphite plant;
- Net cash provided by financing activities decreased $58.1 million in 2022 due to lower sales of shares under the company's equity financing facilities;
- Consolidated net loss for 2022 was $11.1 million, or $0.25 per share, down from a net loss of $16.1 million, or $0.49 per share, for 2021, reflecting lower product development, arbitration, and exploration expenses, and higher interest income of $1.1 million;
- Cash and working capital as of December 31, 2022, were $75.2 million and $51.0 million, respectively, which represent respective decreases of $40.1 million and $59.3 million, compared to December 31, 2021.
The company said its management will host a conference call to discuss the results on Tuesday, March 7, 2023, at 9.30am EST. A live webcast of the conference call presentation will also be available at www.westwaterresources.net
Westwater Resources is an energy technology company focused on developing battery-grade natural graphite. Its primary project is the Kellyton graphite processing plant that is under construction in east-central Alabama.
In addition, the company’s Coosa graphite deposit is the most advanced natural flake graphite deposit in the contiguous United States and located across 41,965 acres (17,000 hectares) in Coosa County, Alabama.
Contact the author at jon.hopkins@proactiveinvestors.com