Westwater Resources has reached an inflection point, in our view. The Company has completed the design and testing of its proprietary graphite materials process and has in hand a blue print for a production facility deploying that design. While management has chosen to share only highlights with investors, the details of a Definitive Feasibility Study are now available for management, potential partners and customers. Indeed, a location for the processing facility has been arranged and management has taken the initial steps toward constructing and equipping the facility. Besides finalized plans, a strong balance sheet is enabling fast execution. The capital requirement for a plant with the capacity to process 8,050 metric tons of graphite concentrate is estimated at $202 million. Company has approximately $100 million in excess cash resources already at hand.
We estimate the Company could reach cash flow breakeven by the end of 2024, if not sooner, depending upon trends in selling prices and the pace of new orders for the Company’s Coated Spherical Purified Graphite (CSPG) and Purified Micronized Graphite (PMG). Recent prices for materials similar to the Company’s CSPG have been near $7,000 per metric ton and PMG near $3,000 per metric ton. We assumed $5,000 and $2,500 per metric ton, respectively, in a financial model mirroring the Company’s anticipated construction calendar. Our model also took into account management’s description of its business pipeline of interested parties, including battery manufacturers and original equipment developers.
In light of the clear progress toward Westwater’s goal to become the first domestic U.S. producer of graphite materials in decades, we believe WWR is even more undervalued than ever trading at just 1.0 times cash resources and 0.94 times book value. Accordingly, we reiterate our Buy rating of WWR. Our price target of $20.00 implies a multiple of 5.37 times current book value and 4.30 times projected book value after the production facility is completed. The forward book value multiple is in line with the current valuation of comparable specialty materials producers, which trade near 4.34 times book value.
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