WESTWATER RESOURCES, INC. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EX-32.2 - WESTWATER RESOURCES, INC.	wwr-20200930ex322f170ee.htm
EX-32.1 - EX-32.1 - WESTWATER RESOURCES, INC.	wwr-20200930ex3210bb6d3.htm
EX-31.2 - EX-31.2 - WESTWATER RESOURCES, INC.	wwr-20200930ex312a26563.htm
EX-31.1 - EX-31.1 - WESTWATER RESOURCES, INC.	wwr-20200930ex3118748b9.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

⌧Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2020

◻Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-33404

WESTWATER RESOURCES, INC.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE		75-2212772
(State of Incorporation)		(I.R.S. Employer Identification No.)

6950 S. Potomac Street, Suite 300, Centennial, Colorado 80112

(Address of Principal Executive Offices, Including Zip Code)

(303) 531-0516

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Stock, $0.001 par value		WWR		Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ◻		Accelerated filer ◻

Non-accelerated filer ⌧		Smaller reporting company ⌧

		Emerging growth company ◻

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No ⌧

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of Each Class of Common Stock		Number of Shares Outstanding
Common Stock, $0.001 par value		19,021,859 as of November 12, 2020

Table of Contents

WESTWATER RESOURCES, INC.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS	3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	36

ITEM 4. CONTROLS AND PROCEDURES	36

PART II - OTHER INFORMATION	37

ITEM 1. LEGAL PROCEEDINGS	37

ITEM 1A. RISK FACTORS	37

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	37

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	37

ITEM 4. MINE SAFETY DISCLOSURES	38

ITEM 5. OTHER INFORMATION	38

ITEM 6. EXHIBITS	39

SIGNATURES	39

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(expressed in thousands of dollars, except share amounts)

(unaudited)


		September 30,		December 31,
	Notes	2020		2019
ASSETS

Current Assets:
Cash and cash equivalents	1	$	5,480	$	1,870
Prepaid and other current assets			431		340
Current assets held for sale	8		9,306		151
Total Current Assets			15,217		2,361

Property, plant and equipment, at cost:
Property, plant and equipment			9,785		9,780
Less accumulated depreciation and depletion			(789)		(785)
Net property, plant and equipment	6		8,996		8,995
Operating lease right-of-use assets	14		383		470
Restricted cash	1,5		807		797
Assets held for sale, non-current	8		—		14,356
Total Assets		$	25,403	$	26,979

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable		$	1,205	$	827
Accrued liabilities			787		994
Operating lease liability - current	14		149		147
Current liabilities held for sale	8		7,758		1,701
Total Current Liabilities			9,899		3,669

Operating lease liability, net of current	14		245		332
Liabilities held for sale, non current	8		—		5,914
Total Liabilities			10,144		9,915

Commitments and Contingencies	13

Stockholders’ Equity:
Common stock, 100,000,000 shares authorized, $.001 par value;
Issued shares – 10,434,012 and 3,339,541 respectively
Outstanding shares - 10,433,851 and 3,339,380 respectively	11		10		3
Paid-in capital	10,11		333,451		319,758
Accumulated deficit			(317,944)		(302,439)
Less: Treasury stock (161 and 161 shares, respectively), at cost			(258)		(258)
Total Stockholders’ Equity			15,259		17,064

Total Liabilities and Stockholders’ Equity		$	25,403	$	26,979

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(expressed in thousands of dollars, except share and per share amounts)

(unaudited)


		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,
	Notes	2020		2019		2020		2019

Operating Expenses:
Mineral property expenses	7	$	(12)	$	(12)	$	(18)	$	(77)
Product development expenses			(1,641)		(19)		(1,942)		(51)
General and administrative expenses			(1,536)		(1,003)		(4,106)		(3,583)
Arbitration costs			(171)		(146)		(868)		(631)
Depreciation and amortization			19		(3)		(5)		(5)
Total operating expenses			(3,341)		(1,183)		(6,939)		(4,347)

Non-Operating Income/(Expenses):
Loss on sale of marketable securities	3,5		—		—		—		(720)
Interest income	3		—		13		—		347
Gain on sale of fixed assets			1		—		22		—
Other income (expense)			(22)		—		(15)		(11)
Total other income (expense)			(21)		13		7		(384)

Net Loss from Continuing Operations			(3,362)		(1,170)		(6,932)		(4,731)

Net Loss from Discontinued Operations	8		(6,389)		(664)		(8,573)		(3,052)

Net Loss		$	(9,751)	$	(1,834)	$	(15,505)	$	(7,783)

Other Comprehensive Income
Transfer to realized loss upon sale of available-for-sale securities			—		—		—		90
Comprehensive Loss		$	(9,751)	$	(1,834)	$	(15,505)	$	(7,693)

BASIC AND DILUTED LOSS PER SHARE		$	(1.23)	$	(0.95)	$	(2.63)	$	(4.66)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING			7,904,522		1,931,419		5,905,850		1,649,145

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL CASH FLOW INFORMATION

(expressed in thousands of dollars)

(unaudited)


		For the Nine Months Ended September 30,
	Notes	2020		2019
Operating Activities:
Net loss		$	(15,505)	$	(7,783)
Reconciliation of net loss to cash used in operations:
Non-cash lease expense			2		8
Accretion of asset retirement obligations	9		170		353
Costs incurred for restoration and reclamation activities	9		(501)		(334)
Amortization of note receivable discount	3		—		(299)
Depreciation and amortization			41		71
Stock compensation expense	11		170		255
Impairment of uranium properties			5,200		—
Gain on disposal of uranium properties	3,4		—		(729)
Loss on sale of marketable securities	3		—		720
Effect of changes in operating working capital items:
(Increase)/Decrease in prepaids and other assets			(29)		105
Increase in payables and accrued liabilities			318		441
Net Cash Used In Operating Activities			(10,134)		(7,192)

Cash Flows From Investing Activities
Proceeds from disposal of uranium assets, net	4		—		2,470
Proceeds from the sale of securities, net	3		—		536
Proceeds from note receivable	3		—		750
Capital expenditures			(107)		—
Net Cash (Used In)/Provided By Investing Activities			(107)		3,756

Cash Flows From Financing Activities:
Proceeds from note payable	16		331		—
Issuance of common stock, net	11		13,530		2,628
Payment of minimum withholding taxes on net share settlements of equity awards			—		(1)
Net Cash Provided By Financing Activities			13,861		2,627

Net increase/(decrease) in cash, cash equivalents and restricted cash			3,620		(809)
Cash, Cash Equivalents and Restricted Cash, Beginning of Period			5,667		5,309
Cash, Cash Equivalents and Restricted Cash, End of Period		$	9,287	$	4,500
Cash Paid During the Period for:
Interest		$	5	$	4
Supplemental Non-Cash Information with Respect to Investing and Financing Activities:
Securities received for payment of notes receivable – Laramide			—		750
Total Non-Cash Investing and Financing Activities for the Period		$	—	$	750

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(expressed in thousands of dollars, except share amounts)

(unaudited)


						Accumulated
						Other
	Common Stock			Paid-In		Comprehensive		Accumulated		Treasury
Nine months ended September 30, 2020	Shares	Amount		Capital		Income (Loss)		Deficit		Stock		Total
Balances, January 1, 2020	3,339,541	$	3	$	319,758	$	—	$	(302,439)	$	(258)	$	17,064
Net loss	—		—		—		—		(15,505)		—		(15,505)
Common stock issued, net of issuance costs	7,093,960		7		13,523		—		—		—		13,530
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes	511		—		170		—		—		—		170
Balances, September 30, 2020	10,434,012	$	10	$	333,451	$	—	$	(317,944)	$	(258)	$	15,259


Three months ended September 30, 2020
Balances, June 30, 2020	6,664,976	$	7	$	326,073	$	—	$	(308,193)	$	(258)	$	17,629
Net loss	—		—		—		—		(9,751)		—		(9,751)
Common stock issued, net of issuance costs	3,769,036		3		7,236		—		—		—		7,239
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes	—		—		142		—		—		—		142
Balances, September 30, 2020	10,434,012	$	10	$	333,451	$	—	$	(317,944)	$	(258)	$	15,259


						Accumulated
						Other
	Common Stock					Comprehensive		Accumulated
Nine months ended September 30, 2019	Shares	Amount		Paid-In Capital		Income (Loss)		Deficit		Treasury Stock		Total
Balances, January 1, 2019	1,436,555	$	1	$	313,012	$	(90)	$	(291,874)	$	(258)	$	20,791
Net loss	—		—		—		—		(7,783)		—		(7,783)
Common stock issued, net of issuance costs	688,208		1		2,628		—		—		—		2,629
Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes	393		—		254		—		—		—		254
Minimum withholding taxes on net share settlements of equity awards	—		—		(1)		—		—		—		(1)
Transfer to realized loss upon sale of available for sale securities	—		—		—		90		—		—		90
Balances, September 30, 2019	2,125,156	$	2	$	315,893	$	—	$	(299,657)	$	(258)	$	15,980


Three months ended September 30, 2019
Balances, June 30, 2019	1,658,371	$	2	$	314,179	$	—	$	(297,823)	$	(258)	$	16,100
Net loss	—		—		—		—		(1,834)		—		(1,834)
Common stock issued, net of issuance costs	466,785		—		1,475		—		—		—		1,475
Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes	—		—		239		—		—		—		239
Balances, September 30, 2019	2,125,156	$	2	$	315,893	$	—	$	(299,657)	$	(258)	$	15,980

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

WESTWATER RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements for Westwater Resources, Inc. (the “Company,” “we,” “us,” “WWR” or “Westwater”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying statements should be read in conjunction with the audited financial statements included in Westwater Resources, Inc.’s 2019 Annual Report on Form 10-K. In the opinion of management, all adjustments (which are of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for any other period including the full year ending December 31, 2020.

Significant Accounting Policies

Our significant accounting policies are detailed in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K for the year ended December 31, 2019.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (ASC 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. This update modifies the disclosure requirements for fair value measurements by removing, modifying or adding disclosures. The Company adopted this pronouncement effective January 1, 2020. The adoption of ASU 2018-13 has not had a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to estimate lifetime expected credit losses and recognize an allowance against the related instruments. For available for sale debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. The adoption of this update, if applicable, will result in earlier recognition of losses and impairments. ASU 2016-13 will be effective for interim and annual periods beginning after December 15, 2022.

In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to ASC 326, Financial Instruments – Credit Losses.” ASU 2016-13 introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost basis. That methodology replaces the probable, incurred loss model for those assets. ASU 2018-19 is the final version of Proposed Accounting Standards Update 2018-270, which has been deleted. Additionally, the amendments clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842, Leases. ASU 2018-19 will be effective for interim and annual periods beginning after December 15, 2022.

Table of Contents

WESTWATER RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company is currently evaluating ASU 2016-13, ASU 2018-19 and ASU 2019-12 for the potential impact of adopting this guidance on its financial reporting.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported within the consolidated balance sheet that sum to the total of the same such amounts shown in the statement of cash flows.


	As of September 30,
(thousands of dollars)	2020		2019
Cash and cash equivalents	$	5,480	$	716
Restricted cash included in assets held for sale (Note 8)		3,000		3,000
Restricted cash not included in assets held for sale		807		784
Cash, cash equivalents and restricted cash shown in the statement of cash flows	$	9,287	$	4,500

The Company’s restricted cash consists of funds held in money market accounts and used as collateral for performance obligation bonds. The funds are not available for the payment of general corporate expenses and are excluded from cash and cash equivalents. The performance obligation bonds are required for future restoration and reclamation obligations for the Company’s South Texas uranium properties.

2. LIQUIDITY

The Company last recorded revenues from operations in 2009. Since 2009, the Company has relied on equity financings, debt financings and asset sales to fund its operations. The Company expects to rely on debt and equity financing to fund its operations into the near future. The Company will also continue its cost reduction initiatives to identify ways to reduce its cash expenditures.

In 2016, the Company began to incorporate energy-related materials into its business plan. Between 2016 and 2020 the Company obtained mineral leases in Nevada and Utah and evaluated a green-fields exploration program for lithium. In 2018, the Company acquired Alabama Graphite Corp. and its Coosa Graphite Project for the purpose of developing the only commercial sized graphite mineral deposit in the contiguous United States and production of advanced graphite products for use in batteries. In the third quarter of 2020, as further discussed below and as further discussed in Note 8, the Company made the strategic decision to focus most of its resources on its graphite business, agreeing to the sale of its uranium business and discontinuing its investment in its lithium mineral properties.

As of September 30, 2020, execution of the business plan for development of the Coosa Graphite Project was underway, with the commissioning of pilot plants for processing flake graphite into battery grade graphite products. The start-up of operations for those plants is expected to commence before the end of 2020 or shortly thereafter. The Company expects the pilot plant phase to last into mid-2021. The Company will use the data generated from the pilot plant operations to inform the requirements and specifications for building a commercial sized graphite processing facility. Pursuant to the Company’s Preliminary Economic Assessment of the Coosa Graphite Project as modified, financing required for the estimated capital expenditures to construct the commercial plant is approximately $120 million. Subject to financing, the Company expects the construction phase for the commercial plant to begin in the second half of 2021 and be completed in mid-2022. The Company expects to begin generating revenues from sales of advanced graphite products from the Coosa Graphite Project in 2023.

While executing on its graphite business plan, the Company has continued to fulfill its obligation to restore and reclaim its legacy uranium properties in South Texas. These activities have resulted in expenditures of approximately $3.5 million per year, and these reclamation activities are expected to continue for an additional 4-5 years before completion. The Company has provided $9.3 million in performance obligation bonds to the Texas Commission for Environment Quality as financial assurance related to its permits and licenses in South Texas, and has a recorded liability of

Table of Contents

WESTWATER RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

approximately $6.0 million for asset retirement obligations on its balance sheet (see Note 9). In addition to its South Texas uranium operations, the Company has spent about $0.5 million to $1.0 million annually to maintain its uranium mineral property holdings in New Mexico.

In furtherance of the Company’s strategic shift to graphite battery materials, on September 1, 2020 the Company entered into a Letter of Intent (“LOI”) to sell its U.S. uranium business, including its U.S. uranium exploration assets in New Mexico and idled production assets in Texas to enCore Energy Corp. (“enCore”) (see Note 8). The pending sale includes the elimination of the $9.3 million bonding liability, the elimination of the $6.0 million in asset retirement obligations, and the elimination of more than $4.0 million in annual expenditures related to reclamation and compliance costs at the Company’s Kingsville, Vasquez, and Rosita sites in South Texas and its New Mexico land holding costs. The Company anticipates that it will receive approximately US$2.0 million of enCore common stock and retain royalty interests on the New Mexico uranium properties as consideration for the sale. This transaction is expected to close on or before December 31, 2020. The Company will retain its uranium interests in Turkey, which are subject to ongoing international arbitration proceeding. The Company’s strategic shift to focus solely on its graphite business also resulted in its decision not to renew its lithium mineral leases in Nevada and Utah when the annual rentals of approximately $0.2 million came due in late August 2020.

At September 30, 2020 the Company’s cash balances were $5.5 million. During the month of October 2020, the Company sold 8.5 million shares of common stock for net proceeds of $50.2 million pursuant to its Controlled Equity Offering^SM Sales Agreement with Cantor Fitzgerald & Co. (“Cantor”) and its Purchase Agreement with Lincoln Park Capital LLC (“Lincoln Park”) (see Note 17). The funding provided by these financing facilities has resulted in a cash balance of approximately $53.3 million at October 31, 2020. Management believes the significant treasury balance has mitigated the Company’s capital risk through 2021 as the Company’s 2021 non-discretionary budget, budgeted graphite pilot plant program and the remaining budgeted product development initiatives are now fully funded. The Company is pursuing project financing to support primary funding of the capital expenditures for construction of the commercial plant set to occur in the second half of 2021.

Management believes the Company’s current cash balance is sufficient to fund its planned non-discretionary expenditures through 2022. In addition to pursuing other project financing, the Company is evaluating the renewal of the Cantor and Lincoln Park financing facilities for use in funding any required contributions by the Company to support project financing for construction of the commercial graphite facility. While the Company has been successful in the past in raising funds through equity and debt financings as well as through the sale of non-core assets, no assurance can be given that additional financing will be available to it in amounts sufficient to meet its needs, or on terms acceptable to the Company. Stock price volatility and uncertain economic conditions caused by the COVID-19 pandemic could significantly impact the Company’s ability to raise funds through equity financing. In the event funds are not available for project financing to complete construction of the commercial facility in 2022, the Company will be able to fund its non-discretionary expenditures, however, the Company may be required to change our planned business strategies.

3. NOTES RECEIVABLE

Laramide Note Receivable

As part of the consideration for the sale of Hydro Resources, Inc. (HRI) in January 2017, the Company received a promissory note in the amount of $5.0 million, secured by a mortgage over the Churchrock and Crownpoint properties owned by Laramide Resources Ltd. (“Laramide”). The note had a three-year term and carried an initial interest rate of 5%. The Company received the first two installment payments of $1.5 million each in January 2018 and January 2019. The final principal payment of $2.0 million was due and payable on January 5, 2020. Interest was payable on a quarterly basis during the final year. Laramide had the right to satisfy up to half of the principal payments by delivering shares of its common stock to the Company, which shares were valued by reference to the volume weighted average price (“VWAP”) for Laramide’s common stock for the 20 trading days before their respective anniversaries of the initial issuance date in

Table of Contents

WESTWATER RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

January. The fair value of this note receivable was determined using the present value of the future cash receipts discounted at a market rate of 9.5%.

On August 30, 2019, the Company sold the promissory note (Note 4). Prior to August 30, 2019, the Company had received three tranches of Laramide common shares as partial consideration for the sale, which had resulted in the receipt of 2,218,133, 1,982,483 and 2,483,034 Laramide common shares in January 2017, January 2018 and January 2019, respectively. These share payments represented the initial consideration from the January 2017 sale of HRI and two note installments in January 2018 and January 2019. The first note installment in the amount of $1.5 million in January 2018, consisted of $750,000 in cash and the issuance of 1,982,483 of Laramide’s common shares. The second note installment in the amount of $1.5 million in January 2019, consisted of $750,000 in cash and the issuance of 2,483,034 of Laramide’s common shares. Additionally, Laramide made interest payments in the amount of $96,022 in cash during the year ending December 31, 2019.

On March 25, 2019, the Company sold the third tranche of 2,483,034 Laramide common shares and 2,218,133 Laramide warrants resulting in net proceeds of $0.5 million and a net loss on sale of marketable securities of $0.7 million.

4. SALE OF URANIUM ASSETS

On March 5, 2019, the Company entered into an Asset Purchase Agreement with Uranium Royalty (USA) Corp. and Uranium Royalty Corp. (together “URC”) for the sale of four of its royalty interests on future uranium production from mineral properties located in South Dakota, Wyoming and New Mexico, as well as the remaining amount of the Laramide promissory note in the amount of $2.0 million as discussed in Note 3 above, for $2.75 million, including $0.5 million paid at signing. On June 28, 2019, Westwater and URC entered into an Amendment to the Asset Purchase Agreement. The Amendment extended the date for closing from July 31, 2019 to August 30, 2019. URC delivered an additional $1.0 million as deposit to the Company upon signing the Amendment. The transaction closed on August 30, 2019 at which time the Company transferred ownership of the royalties and promissory note in exchange for the final payment of $1.25 million.

The sale of these uranium assets was accounted for as an asset disposal. The Company recorded a net gain of $0.7 million on disposal of uranium assets on its Consolidated Statements of Operations for the nine months ended September 30, 2019. At September 30, 2020, the gain has been reclassified to discontinued operations, which are reported as a separate component of Net Income/Loss for the prior periods on the Statement of Operations (see Note 8).


URC Transaction
(thousands of dollars)
Total cash consideration received, net of transaction costs	$	2,470
Carrying value of promissory note		(1,741)
Carrying value of royalty interests		—
Gain on disposal of uranium assets	$	729

A discussion on the Company’s current efforts to sell its remaining U.S. uranium business, including its uranium exploration assets in New Mexico and idled production assets in Texas to enCore Energy (see Note 8).

5. FINANCIAL INSTRUMENTS

Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes

Table of Contents

WESTWATER RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

a fair-value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):

●

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that are observable at the measurement date.

●

Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

●

Level 3 includes unobservable inputs that reflect management’s assumptions about what factors market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including internal data.

The Company believes that the fair value of its assets and liabilities approximates their reported carrying amounts. The following table presents information about assets that were recorded at fair value on a recurring and non-recurring basis as of September 30, 2020 and December 31, 2019 and indicates the fair value hierarchy.


	September 30, 2020
(thousands of dollars)	Level 1		Level 2		Level 3		Total
Current Assets
Restricted cash included in assets held for sale		3,000		—		—		3,000
Total current assets recorded at fair value	$	3,000	$	—	$	—	$	3,000
Non-current Assets
Restricted cash not included in assets held for sale	$	807	$	—	$	—	$	807
Total non-current assets recorded at fair value	$	807	$	—	$	—	$	807


	December 31, 2019
(thousands of dollars)	Level 1		Level 2		Level 3		Total
Non-current Assets
Restricted cash included in assets held for sale	$	3,000	$	—	$	—	$	3,000
Restricted cash not included in assets held for sale		797		—		—		797
Total non-current assets recorded at fair value	$	3,797	$	—	$	—	$	3,797

Assets that are measured on a recurring basis include the Company’s marketable securities and restricted cash.

6. PROPERTY, PLANT AND EQUIPMENT


	Net Book Value of Property, Plant and Equipment at September 30, 2020
(thousands of dollars)	Texas		Alabama		New Mexico		Corporate		Total
Uranium plant	$	1,855	$	0	$	-	$	-	$	1,855
Mineral rights and properties		-		8,972		3,900		-		12,872
Other property, plant and equipment		452		-		-		24		476
Total Property, Plant and Equipment	$	2,307	$	8,972	$	3,900	$	24	$	15,203
Property, Plant and Equipment included in assets held for sale		2,307		-		3,900		-		6,207
Property, Plant and Equipment from Continuing Operations	$	-	$	8,972	$	-	$	24	$	8,996

Table of Contents

WESTWATER RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	Net Book Value of Property, Plant and Equipment at December 31, 2019
(thousands of dollars)	Texas		Alabama		New Mexico		Corporate		Total
Uranium plant	$	3,112	$	-	$	-	$	-	$	3,112
Mineral rights and properties		-		8,972		7,806		-		16,778
Other property, plant and equipment		424		-		-		23		447
Total Property, Plant and Equipment	$	3,536	$	8,972	$	7,806	$	23	$	20,337
Property, Plant and Equipment included in assets held for sale		3,536		-		7,806		-		11,342
Property, Plant and Equipment from Continuing Operations	$	-	$	8,972	$	-	$	23	$	8,995

Included in the Property, Plant and Equipment tables above are the long-lived assets related to the Company’s uranium business, which are reported in discontinued operations (see Note 8).

Impairment of Property, Plant and Equipment

The Company reviews and evaluates its long-lived assets for impairment on an annual basis or more frequently when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. As discussed in Note 8, the Company has entered into a binding LOI to sell its uranium business. The proposed terms of the transaction are an indicator of impairment of the Company’s long-lived uranium property, plant and equipment. For purposes of determining the amount of impairment, the Company has estimated that a loss in the amount of $5.2 million will be recorded upon closing of the proposed transaction using the September 30, 2020 carrying values of the uranium assets and liabilities included in the transaction plus estimated costs to close the transaction.

As discussed in Note 8, at September 30, 2020, property, plant and equipment related to the Company’s U.S. uranium business in Texas and New Mexico, net of the $5.2 million impairment charge, have been reclassified to Held for Sale on the Condensed Consolidated Balance Sheet. Balances for prior year periods have also been reclassified. The $5.2 million impairment charge is included in discontinued operations on the Condensed Consolidated Statement of Operations for the period ended September 30, 2020.

Table of Contents

WESTWATER RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

7. MINERAL PROPERTY EXPENDITURES

Mineral property expenditures by geographical location for the three and nine months ended September 30, 2020 and 2019 are as follows:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019

	(thousands of dollars)
Kingsville Dome project, Texas	$	291	$	203	$	735	$	592
Rosita project, Texas		158		237		371		455
Vasquez project, Texas		95		85		456		397
Other projects, Texas		17		5		20		(4)
Total Texas projects		561		530		1,582		1,440

Cebolleta project, New Mexico		150		—		291		440
Juan Tafoya project, New Mexico		41		40		50		49
West Largo		—		13		—		13
Total New Mexico projects		191		53		341		502

Columbus Basin project, Nevada		—		126		—		127
Other projects, Nevada		—		—		—		—
Total Nevada projects		—		126		—		127

Sal Rica project, Utah		—		111		1		112
Total Utah projects		—		111		1		112

Coosa project, Alabama		12		12		18		77
Bama project, Alabama		—		—		—		—
Total Alabama projects		12		12		18		77

Total expense for the period	$	764	$	832	$	1,942	$	2,258
(Less) Mineral Property expenses attributable to Discontinued Operations		(752)		(820)		(1,924)		(2,181)
Mineral Property expenses for Continued Operations	$	12	$	12	$	18	$	77

Included in the table above are mineral property expenses related to the Company’s discontinued U.S. uranium and lithium operations (see Note 8). For the nine months ended September 30, 2020 and 2019, $1.9 million was spent on mineral property expenses for the Company’s uranium properties in Texas and New Mexico. Expenditures included land-holding and maintenance, reclamation activities and standby costs. The Company also spent $0.2 million during the third quarter of 2019 for claim maintenance, permits and fees on its lithium holdings in Utah and Nevada acquired in 2016. These costs are included in the net loss from discontinued operations on the Condensed Consolidated Statements of Operations.

8. DISCONTINUED OPERATIONS

In the third quarter of 2020, the Company made the strategic decision to focus most of its resources on its graphite business, agreeing to the sale of its uranium business as further discussed below, and discontinuing its investment in its lithium business. The Company’s lithium business included mineral leases and water rights in Nevada and Utah. The Company elected not to renew the annual lease rentals on the mineral properties, which also voids the water rights.

On September 1, 2020, the Company signed a binding LOI to sell its U.S. uranium assets located in New Mexico and Texas to enCore Energy Corp., a corporation incorporated under the laws of British Columbia, Canada. The proposed transaction with enCore will be structured as a direct share purchase in which enCore acquires all issued and outstanding

Table of Contents

WESTWATER RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

equity securities of Westwater’s wholly-owned uranium subsidiaries, URI Inc., Neutron Energy Inc., and Uranco, Inc., as well as related subsidiaries, HRI-Churchrock, Inc., Hydro Restoration Corp., Belt Line Resources, Inc., and Uranium Resources, Inc. (f/k/a URI Minerals, Inc.). Westwater expects to receive enCore shares valued at approximately $2.0 million and retain royalties from future production from the New Mexico uranium properties. As part of the proposed transaction, enCore will receive $3.0 million of cash collateral currently pledged against reclamation performance obligation bonds totaling approximately $9.3 million upon the successful replacement of those performance obligation bonds. EnCore will also assume other liabilities related to the uranium properties including asset retirement obligations and outstanding royalties payable.

The sale is expected to close on or before December 31, 2020. The Company considers assets to be held for sale when management approves and commits to a formal plan to actively market the assets for sale at a price reasonable in relation to fair value, the asset is available for immediate sale in its present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the asset is expected to be completed within one year and it is unlikely that significant changes will be made to the plan. Management has concluded that the sale of its U.S. uranium assets to enCore meets these criteria. As a result, the assets and liabilities in the disposal group are classified as held for sale for all periods presented on the Condensed Consolidated Balance Sheet as of September 30, 2020. This divestiture will allow the Company to devote most of its available resources to the development of high-performance battery graphite. This transaction represents a major strategic shift for Westwater and is expected to significantly affect current and future operations and financial results. Due to this shift, the Company’s uranium segment has been classified as a discontinued operation and is reported separately from continuing operations on the Condensed Consolidated Statement of Operations for all periods presented.

The carrying amounts of the major classes of assets and liabilities related to the Company’s discontinued uranium and lithium operations and classified as held for sale as of September 30, 2020 and December 31, 2019 were as follows:

Table of Contents

WESTWATER RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	September 30,		December 31,
	2020		2019
(thousands of dollars)
Restricted Cash	$	3,000	$	—
Prepaid and other current assets		89		151
Net property, plant and equipment		6,207		—
Operating lease right-of-use assets		10		—
Current Assets Held for Sale		9,306		151

Net property, plant and equipment		—		11,342
Operating lease right-of-use assets		—		14
Restricted cash		—		3,000
Assets Held for Sale, non-current		—		14,356

Total Assets Held for Sale	$	9,306	$	14,507

Accounts payable	$	140	$	25
Accrued liabilities		808		776
Asset retirement obligations - current		5,969		894
Operating lease liability - current		10		6
Notes payable - current		331		—
Other current liabilities		500		—
Current Liabilities Held for Sale		7,758		1,701

Asset retirement obligations, net of current		—		5,406
Operating lease liability, net of current		—		8
Other long-term liabilities		—		500
Liabilities Held for Sale, non-current		—		5,914

Total Liabilities Held for Sale	$	7,758	$	7,615

The results of the Company’s uranium and lithium business segments included in discontinued operations for the three and nine months ended September 30, 2020 and 2019 were as follows:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(thousands of dollars)	2020		2019		2020		2019
Mineral property expenses	$	(752)	$	(820)	$	(1,924)	$	(2,181)
General and administrative expenses		(405)		(356)		(1,273)		(1,181)
Accretion of asset retirement obligations		(32)		(197)		(170)		(353)
Depreciation and amortization		(30)		(20)		(36)		(66)
Impairment of uranium properties		(5,200)		—		(5,200)		—
Gain on disposal of uranium assets		—		729		—		729
Other income (expense)		30		—		30		—
Net Loss from Discontinued Operations	$	(6,389)	$	(664)	$	(8,573)	$	(3,052)

Our cash flow information for 2020 and 2019 included the following activities related to discontinued operations:

Table of Contents

WESTWATER RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
		2020		2019		2020		2019
(thousands of dollars)
Depreciation and amortization	$	30	$	20	$	36	$	66
Capital Expenditures		-		-		(101)		-
Accretion of asset retirement obligations		32		197		170		353
Impairment of uranium properties		5,200		-		5,200		-

9. ASSET RETIREMENT OBLIGATIONS (“ARO”)

The following table summarizes the changes in the reserve for future restoration and reclamation costs on the balance sheet:


	September 30,			December 31,
(thousands of dollars)	2020			2019
Balance, beginning of period	$	6,300		$	6,203
Liabilities settled		(501)			(293)
Accretion expense		170			390
Balance, end of period		5,969	R

WESTWATER RESOURCES, INC. - FORM 10-Q - November 12, 2020

Attached files