Our coverage of Westwater Resources (WWR) is updated with the publication of a new report on May 19, 2021.
During the first quarter 2021, Westwater Resources completed a successful test of its proprietary production process for battery-grade graphite, producing 13.2 metric tons of material that can be used for customer qualification trials as well as additional development tests by the Company’s engineers. The Company also raised $72.2 million in new capital in the quarter, bringing cash balances at the end of March 2021, to $117.9 million. During the earnings conference call management declared the cash hoard sufficient to support operations through the end of 2022 as well as provide capital for completion of Phase I of construction of the planned graphite materials processing plant. We believe that plant is likely to be located near the Company’s Coosa County, Alabama graphite resource. A final feasibility study is already underway and on schedule to be completed sometime in the third quarter 2021. That study is expected to detail the capital requirement and operating budget for the processing plant project.
Westwater’s list of accomplishment is growing. While our rating of WWR remains Speculative Buy, there is every greater certainty in the Company’s energy materials story with every check on management’s list of tasks to bring graphite materials to market. The successful pilot process test is informing a final feasibility study that will in turn support the processing plant construction decision and financing. It appears that the Company currently has enough capital in hand to begin construction on time even while seeking additional resources through strategic partners or equipment financing. In our view, this puts Westwater in a strong position to realize its goal of commercial production by the end of 2022. With the performance and quality of its various battery-grade graphite materials already well established, we believe Westwater is fast moving to a leading position in the graphite materials sector.
Our target price for WWR is $20.00. In our view, Westwater has been consistently undervalued relative to its peers. We believe this is due in part of concerns about capital adequacy as well as negative news related to the Company’s uranium mining activities. With a plump bank balance and the Company’s exit from the uranium sector, we view these risks as at least partially mitigated. A review of recent price multiples for a selection of 35 graphite mining and materials development companies finds an average price-to-book value multiple of 7.24, which implies an intrinsic value of $27.81 for WWR.
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