After a drought in news of graphite materials business development, Westwater Resources disclosed a request for one metric ton of the Company’s proprietary ULTRA-PMG battery-grade graphite materials from a U.S.-based battery manufacturer. The Purified Micronized Graphite will be used in qualification testing probably to confirm and fine tune manufacturing processes. In our view, the request signals promising movement forward by this customer and suggests it is more likely than not that the customer will adopt the ULTRA-PMG for its battery design.
The news overshadowed the simultaneous release of financial performance in the quarter ending June 2019 quarter. The most significant take-away from the quarter was the material reduction in cash usage that served to stretch out financial resources. After several months of struggle in the first half of the year, Westwater has completed an equity agreement to sell $10 million in common stock over the next two years to Lincoln Capital Fund, a private equity firm based in Chicago. The last critical step to the arrangement was completed on August 6th with shareholder approval of the issuance of more than 19.9% of the Company’s outstanding shares to Lincoln Park Capital. The lifting of the restriction makes it possible for the Company to raise larger sums at any given time. We expect most of the capital raised through this arrangement will be used for the graphite development project and vanadium exploration.
We continue to rate WWR at Speculative Buy with a $30.00 price target. In our view, the shares remain deeply undervalued. We believe the news of a request for a large quantity of graphite materials for testing from a battery manufacturer signals an increase in the probability that the Company can realize a return from the investment in graphite assets in Alabama. The Company aims to be the first U.S. domestic producer of battery-grade graphite. In our view, that goal is more plausible today and that should give investors more confidence in the Company’s prospects. What is more the Company now has access to capital to execute on its business plan. We believe this too improves the probability of success.
Investors responded warmly to the customer announcement, immediately bidding the shares higher. However, the news came during a particularly tough week for U.S. equities as investors reacted to disappointing news related to trade disagreements between the U.S. and China. The stock ended down on the week of the quarter financial report and customer news. Thus the stock price remains depressed even though the Company has made clear progress with penetrating the U.S. battery market with its graphite materials.
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