Westwater Resources delivered a series of surprise announcements with its financial report for the year ending December 2022. First, the Company apparently has a new customer on the hook with a development arrangement for the Company’s ULTRA-CSPG battery grade graphite material. The customer is characterized as a Tier One battery manufacturer, an exclusive group typically regarded as Contemporary Amperex Technology Company Ltd. (300750: SZ), LG Chem (051910: KS), Panasonic Holdings (6752: T) and even Tesla, Inc. (TSLA: Nasdaq), since as the electric vehicle producer began to manufacture its own batteries. During the year 2022 earnings conference call Westwater management promised full disclosure in the near-term as the development pact gives rise to a purchase agreement that could ultimately soak up nearly all the Company’s planned CSPG production.
Although it is non-binding, the receipt just one day before the earnings release of a term sheet for a $150 million private loan, was welcome news for the Company. Additional details on the interest rate and repayment terms are expected before the end of the current quarter ending June 2023.
Perhaps the most important announcement related to a new strategy to optimize throughput at the Company’s planned battery-grade graphite materials plant near Kellyton, AL. The optimization scheme relies on installing additional equipment for two of the required production steps, as well as other process adjustments that could double expected production capacity even in the first phase of the plant operation. Phase I production is now expected near 16,000 metric tons per year, phasing in gradually as the plant is commissioned and begins commercial production. Eventually, optimization efforts could lead to production capacity near 86,500 metric tons when Phase II is financed and constructed.
We continue to rate WWR at Speculative Buy. Our price target is revised to $15.00 per share, reflecting a revised timeline for future sales and earnings expectations, updated valuation multiples and increased shares outstanding.
Share price could be potentially impacted positively by any one of the several developments in Westwater’s strategic plan to sell refined graphite materials to the electric vehicle battery market. We expect additional announcements from Westwater in the near term regarding its business pipeline in general and in particular, the new prospective customer in the EV battery market. Management has promised a name and, in the meantime, we expect considerable speculation about which one of the few Tier One battery manufacturers could be talking to Westwater. There is likely to be additional speculation and potentially some anxiety about the $150 million debt financing that is on the table. Closing is expected within the quarter ending June 2023, limiting the period of fretting over unknown details.
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