Update Report – Westwater Resources (WWR)

Westwater Resources’ financial report for the third quarter ending September 2022, is a tale of capital investment and cash resource management.  Investors had been keen to know if the Company is making good on plans to build a production facility and begin turning out the Company’s proprietary battery-grade graphite materials.  The Company used $9.8 million in cash resources to support operations ($2.7 million) and for capital investment ($7.1 million).  Work on the graphite production facility near Kellyton, Alabama is on schedule for completion by mid-2023.  The value of construction-in-process increased by $20.5 million in the quarter, with the total of this temporary asset category reaching $49.5 million at the end of September 2022.  At the end of the quarter, the Company had $100.3 million on its balance sheet, in our view, sufficient to keep operations going and the graphite construction project humming well into 2023.

In our view, shares of Westwater Resources remained undervalued.  From standpoint of liquidation, arguably the worst of circumstances for an operating company, we estimate Westwater would be valued at approximately $110.4 million ($100.3 million in cash plus book value of fixed assets marked down by 50% or $32.2 million and less total liabilities of $22.1 million).  This is twice the current market value of WWR.  Given strong growth in demand for graphite materials and the apparent supply deficit, we do not believe the Company would have any difficulty in finding a suitor for its assets, suggesting our calculation is highly conservative.  Furthermore, the Company’s quarter report makes clear the leadership team is succeeding in execution on plans to reach commercial stage with its graphite materials by the end of 2023.

Accordingly, we continue to rate WWR at Speculative Buy.  We acknowledge there is some distance to our price target of $20.00.  That said, the Company has made considerable progress toward realizing the value in its graphite resource and proprietary graphite processing technology.  In the long-term there is reason to expect the Company to generate significant cash flow from its graphite assets.  Accordingly, the speculative element of a position in WWR is becoming less risky with on uncertainty after another in the Company’s strategic plans are getting resolved.

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