We initiated coverage of Westwater Resources with a Speculative Buy rating and a one-year target price of $1.50 based on an estimated intrinsic value of $5.00 per share and tempered by recent trading patterns.
Westwater is a building portfolio of energy materials assets that creates a triple threat of uranium, lithium and now graphite. The Company has used a mix of acquisitions and leases to accumulate promising mineral assets. Westwater’s origins are in uranium exploration and mining with particular expertise around in situ recovery technology. Commercial uranium assets in Texas are in temporary shutdown and additional uranium deposits are under development in New Mexico and Turkey. Additionally, the Company has assembled properties in Nevada and Utah with indications of ample lithium deposits. Most recently Westwater has targeted graphite with the proposed acquisition of Alabama Graphite, an early stage battery-grade graphite materials developer.
Multiple market forces are driving demand for particular metals in energy and power applications. While not unanimous, the overwhelming majority of scientists view global warming as the result of fossil fuel combustion and advocate a shift to renewable energy sources. The argument supports nuclear power as a electricity base load source despite rising capital costs. Climate concerns are also driving the adoption of wind and solar power. Additionally, combustion engines in cars and trucks are being replaced with electric drive trains. These latter two trends are triggering demand for battery storage solutions that will require large supplies of battery metals, including lithium and graphite. We believe the Company with its unique asset portfolio holds key advantages and earnings power in each of these minerals markets.
With the proposed acquisition of a graphite materials developer, Westwater could return to active production within the next two years – and to profitability within three years. The target, Alabama Graphite, has successfully proven its battery-grade graphite and has multiple potential customer relationships with battery manufacturers, the most mature of which could reach commercial stage by the end of 2019. With a successful commercial market entry through the Alabama Graphite deal, Westwater could be the first domestic source of battery-grade graphite in the U.S.
In our view, WWR is undervalued given promising demand conditions in the Company’s end markets, strong minerals asset portfolio, competitive technology and knowhow, and potential to return to profitable operations within as few as three years. We expect numerous valuation catalysts for the stock to unfold over the next several months, including completion of the Alabama Graphite acquisition, progress reports on customer testing of proprietary graphite materials, and results of exploration in Westwater’s lithium assets.
Click on the image below to view the full 43-page report.
Please note important disclosures in final pages of Crystal Equity Research reports.